Tags: Barack Obama | student loans | defer payment | shortfall | obama | repayment | postpone

Student Loan Program Faces $22B Shortfall; Obama Policy Blamed

By    |   Thursday, 05 Feb 2015 05:20 PM

Thanks to President Barack Obama's relief actions, the national student loan program is facing a massive shortfall of $21.8 billion from last year, the biggest shortfall ever recorded for any government agency.

The shortfall is larger than the budget of NASA, even the Department of the Interior and the Environmental Protection Administration combined, and is likely to grow, Politico reports, as Obama's reforms continue to allow those under water with student loan debt to defer or avoid payment.

Two repayment methods pushed by the Obama administration are being blamed for the record shortfall, and increases in their use by the 40 million Americans who owe more than $1.2 trillion in outstanding student loans are expected to force the deficit to continue to grow, Politico notes.

One option, forbearance, allows student loan debtors to postpone payments for up to three years without going into default, and amount to 16 percent, or $125 billion of $778 billion in unpaid debt, from 12.5 percent in 2006, The Wall Street Journal notes in a piece written by Jason Delisle, director of the Federal Education Budget Project at the New America Foundation.

The second option, income-based repayment, allows those making less than 150 percent of the poverty rate to make no payments, while those making more can pay up to 15 percent of their income. After 25 years, the loans are forgiven, and paid by taxpayers.

Steve Ellis, president of Taxpayers for Common Sense, told Politico, "Wow! Whether or not it's good policy to help borrowers with their payments, it's obviously costly to taxpayers."

Forbes notes that 23.5 percent of undergraduate Stafford loans issued next year will default, while "every other student loan category also shows an increase in projected default rates."

In just the past two years, Politico notes, direct government loans have increased 44 percent, and the Department of Education adds the $21.8 billion to the deficit.

Politico notes that Barclays Capital has estimated that the government will be $250 billion in the hole on student loans over the next 10 years if the situation continues.

Delisle wrote in the Journal that the Obama administration estimated in 2012 that the result of its loan-forgiveness programs means that the programs will forgive an average of $41,000 per borrower.

"Lawmakers have provided students with options that let them punt on repayment without triggering delinquency or default. Lately, students have been availing themselves of those options at rising levels," he writes.

"The Obama administration greatly expanded benefits under income-based repayment plans in recent years and has launched efforts to promote them.

"The program is performing quite well for students and the institutions whose coffers swell under such loose lending standards. Loan issuance has grown rapidly in recent years while repayment rates have declined steadily.

"From the perspective of the taxpayers who must ultimately finance these liabilities, however, the federal student-loan program is performing badly and steadily getting worse."

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Thanks to President Barack Obama's relief actions, the national student loan program is facing a massive shortfall of $21.8 billion from last year, the biggest shortfall ever recorded for any government agency.
student loans, defer payment, shortfall, obama, repayment, postpone, deficit, forbearance, college
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2015-20-05
Thursday, 05 Feb 2015 05:20 PM
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