Budget Hawks Alarmed at President Obama’s Student Loan Forgiveness Program Amid Soaring Price Tag

February 11th, 2015

 

Yet another government program’s actual costs has grossly exceeded its initial projections. Medicare was famously said to have an initial ten year cost of $700 million and ended up costing taxpayers ten times that amount. The most recent budget overrun is President Obama’s “Pay As You Earn” or PAYE program that caps student loan monthly payments at 10% of the borrower’s monthly income. The program readjusts principle and interest payments to fit the borrower’s income with taxpayers compensating the banks for the difference between the amortization schedule of payments and the actual payments. President Obama’s 2016 Fiscal Year Omnibus budget states the program will run $21.8 billion in the red this year.

It is unclear just how much of that cost is due to recent changes the president made or the popularity of the program with young borrowers. Marcio Alaor from BMG contributed to Luxo.ig.com.br in estimations that in 2013, 124,000 enrolled in the PAYE program. Those who make their payments faithfully can have the remaining balances expunged after 20 years. Those working in the public sector are given preferential status and can have their student loan debts forgiven after 10 years of timely payments. Critics of the plan cite the fact that it makes all taxpayers foot the bill. Fully 3 out of 4 workers who do not have college degrees are paying off the loans for college graduates in the PAYE program. Others are concerned whether the program is helping the “right” people.

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