Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Costs, Higher Tuition

Some Law Schools Advertise Their Own Plans to Cover Loan Repayments

Click here to read the WSJ article. Excerpts:

"Government officials are trying to rein in increasingly popular federal programs that forgive some student debt,"

"law schools are now advertising their own plans that offer to cover a graduate's federal loan repayments until outstanding debt is forgiven. The school aid opens the way for free or greatly subsidized degrees at taxpayer expense."

"At issue are two federal loan repayment plans created by Congress, originally to help students with big debt loads and to promote work in lower-paying jobs outside the private sector. 

The fastest-growing plan, revamped by President Barack Obama in 2011, requires borrowers to pay 10% a year of their discretionary income—annual income above 150% of the poverty level—in monthly installments. Under the plan, the unpaid balances for those working in the public sector or for nonprofits are then forgiven after 10 years. 

Private-sector workers also see their debts wiped clean—after a longer period of 20 years"

"the future cost of the 2011 program, known as Pay As You Earn, could hit $14 billion a year."

"There is currently no limit on such debt."

 "promising huge debt forgiveness could make borrowers and schools less disciplined about costs. Colleges might charge more than they would otherwise, leading students to borrow more.

Federal data show tuition and fees are up more than 6% a year on average in the past decade,"

"the administration has pushed other changes, such as extending the forgiveness window to 25 years for the most-indebted students."

"The plans' long-term costs have greatly outpaced the government's predictions. In the last fiscal year, debt absorbed by the repayment plans from the most widely used student-loan program—Stafford loans—exceeded government expectations from a year earlier by 90%."

"in 2007, Congress allowed borrowers working in nonprofit and government jobs to have unpaid debt forgiven after 10 years, and cut monthly payments for new borrowers to 15% of discretionary income.

In 2010, it cut those payments to 10% for borrowers who took out loans from 2014."