Tags: Dorfman | student | loan | debt

Economist Dorfman: Stop Free College From Becoming Another Government Entitlement

By    |   Friday, 13 February 2015 12:00 PM

Loan forgiveness in the $1.3 trillion student loan market, a new federal giveaway pursued by the Obama administration, could end up being a very expensive education for taxpayers, according to economist Jeffrey Dorfman.

Dorfman, a University of Georgia economics professor, said average student debt among college graduates is approximately $28,000, while the median figure — the statistical point at which half have more debt and half have less — is only $10,000.

That's a great investment in the future for most students, in his view, especially when even the average English major — not universally regarded as leading to an especially useful degree compared to a science or technology major — can expect an additional $444,700 in lifetime earnings above the average high school graduate.

So why all of the gnashing of teeth in Washington?

"The average student loan debt load is roughly equal to the price of a car. In fact, the average car loan balance these days is about $17,000. Those cars will not last a lifetime and they do not provide an earnings boost. Yet people pay them off, generally in four to six years," he wrote in a guest column for Forbes.

"Student loan debt has even been blamed for the slow housing recovery and a slowdown in car sales. Yet the real problem with student loan debt at the moment is that taxpayers just got stuck with a $22 billion bill for expected non-payment of student loans."

In Dorfman's view, student debt might now be a problem for America at least in part because the federal government has taken over the college lending market from private enterprise. "Because the federal government makes most of the student loans currently being issued and has made or guaranteed most of the outstanding student loan debt, taxpayers are on the hook for that $1.3 trillion in outstanding debt," he explained.

"While Senator Elizabeth Warren, D-Mass., and students with especially heavy debt burdens have been complaining that Congress is making a profit on student loans, the opposite was just proven a reality. Within President Obama's budget was included a $21.8 billion write off of expected future student loan repayments, meaning the deficit just increased by almost $22 billion without any congressional action at all."

If this new college giveaway trend is not stopped in its tracks, Dorfman said, it — perhaps like other government programs that started fairly small — could mushroom and cost taxpayers hundreds of billions of dollars if not a trillion going forward.

"People with much lower incomes than the average college graduate pay off car loans as a routine matter. Student loan debt becomes a problem when the borrower wants to spend their newly increased incomes on nice food, clothes, cars, housing and vacations rather than on their student debt payments," he noted.

"Those with student loan debt might be happy, but taxpayers need to wake up and grab hold of their wallets. Failure to act could be an expensive education for the taxpayers, not the college students."

Part of the problem with U.S. student debt is the fact that the cost of going to college in this nation has reached crippling levels, BBC News suggested.

"Nowhere in the world does it cost as much to go to university as it does in the US. Some private universities here cost more than $50,000 per year just for tuition, and that doesn't cover accommodation [housing], food or even books," the BBC reported.

Earlier in February, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education announced more than $480 million in forgiveness for borrowers who were pressured into Corinthian College's high-cost private student loans by advertisement bogus job prospects and career services.

The federal agencies said ECMC Group, the new owner of a number of Corinthian schools, would provide that amount in debt relief to "victims" of Corinthian's alleged predatory and illegal lending scheme.

Corinthian was one of the largest for-profit post-secondary education companies in North America, but in the midst of lawsuits and a federal criminal investigation, was taken over by the nonprofit ECMC earlier this year.

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Loan forgiveness in the $1.3 trillion student loan market, a new federal giveaway pursued by the Obama administration, could end up being a very expensive education for taxpayers, according to economist Jeffrey Dorfman.
Dorfman, student, loan, debt
Friday, 13 February 2015 12:00 PM
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