Today is Fri, October 20, 2017 17:45:19 GMT
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Contributors Another Government-Created Bubble

There’s no question we have another bubble in student loan debt, thanks to government policies. Take a look at the chart below. It shows that over the last 10 years, tuition costs have outpaced income growth.

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No wonder almost no one can afford tuition these days. What’s the government’s plan to fix the problem?

Well, the government wants to lower student loan debt through the income-based repayment plan (IBR). It currently allows college graduates to spend just 15% of non-discretionary income on student loan repayments with complete loan forgiveness after 25 years.

But there may be a change coming this year: The government wants graduates to spend only 10% of non-discretionary income on loan repayment and have debt forgiveness after 20 years.

That sounds to me like a big incentive for students to keep borrowing more and more. This will allow colleges to keep hiking the price of tuition, keeping this bubble going.

In fact, the director of the New America Foundation’s Federal Education Budget Project published research showing that this plan will likely backfire.

The study found, for example, that under the proposed rules there would be no extra cost in borrowing any additional money for student loan debts exceeding $60,000, regardless of salary.

In other words, the more you borrow in student loans, the more they will forgive. This is a great plan, if you’re trying to make sure tuition costs keep skyrocketing.

Regards,


Evaldo Albuquerque
Senior Analyst

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