IBR We Hardly New Ye?

John Hechinger, “Student-Loan Collection Targeted for Overhaul by Congress,” Bloomberg.

Speaking of the problems with IBR:

The bill would also eliminate income-based programs that forgive loans entirely after 20 or 25 years — and, after 10 years, for those who enter public-service careers, such as teaching or law enforcement. The new system would apply only to new loans.

This is a component nestled in WI Representative Tom Petri’s proposed bill. This isn’t a criticism. The bill itself, as I understand it, incorporates IBRish principles into how it changes how student loan repayment works. Instead of cutting checks or direct deposits to ED, student debtors’ employers would simply withhold 15 percent of their paychecks. Supposedly it avoids debtors defaulting and dealing with debt collection companies that don’t tell them about IBR because it means they don’t get paid.

Nevertheless, there are aspects that might miss the point:

In another boon to borrowers, the plan would cap interest owed at 50 percent of a loan’s face value at the time of graduation, giving a break to lower-income borrowers who take longer than the standard 10 years to repay loans. For a student who took out $27,000 in loans, about the national average for a graduate of a four-year program who borrowed, the interest couldn’t exceed $13,500.

Of course, if the interest isn’t repayable, then there’s a good chance the loan shouldn’t’ve been made in the first place, i.e. a large opportunity cost. It also doesn’t necessarily ensure that people who borrow for higher education in fact become more productive and work in a position that needed more than a high school education (or a legal education). Finally, anyone who borrows too much in principal alone will never pay their debts off.

Along with facing private debt collectors, students may also be sued by the U.S. Justice Department, which hires private attorneys to pursue debtors who default on decades-old loans, Bloomberg News reported in July.

Hey law grads! Here’s a job for you: Hunt down your deadbeat classmates!

Like the debt ceiling bill from last year, student loans weigh heavier on legislators’ minds than the government wants to admit. It’s a revenue stream that the government doesn’t have to call a tax while simultaneously ignoring forgone living standards.

*****

In other news, a couple of important tidbits about yesterday’s post.

(1) The ABA’s median public non-resident tuition isn’t accurate. I think I noted that the first time I used the tuition chart with the annual Stafford Loan limits. Here’s what all this stuff is in current dollars.

Median Law School Tuition (Current $)

I have no idea why the ABA has gotten those numbers so blatantly wrong since 2008, but that’s what it is. Thankfully it’s precise for the other two series.

(2) It occurred to me late yesterday that pre-2005 law students may have had access to Parent PLUS loans, from which Grad PLUS loans were conceived. Indeed, since 1993, the limit on those was cost of attendance minus other aid, so there was a federally guaranteed option available to cover what Staffords could not. I also forgot to consider Perkins Loans, which are a whole ‘nother issue I know little about.

To rephrase the question I was asking, “If the student loan system were unchanged since 2005, would people still be able to finance law school today or would lenders be telling them ‘No.’?” The optimist in me says the former is correct: I don’t think parents would co-sign such huge unlimited loans, and I think private lenders wouldn’t cut loans that would be discharged shortly after graduation (unless they could sell it to some other chump MBS-style). As a result, tuition would have dropped. The key word I used deliberately was “conservatively” because the cynic in me suspects that law schools would’ve engaged in other shenanigans like pushing more people into cheaper part-time programs to squeeze more out of them and things like that. A lot to think about.

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