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The Government Student Loan Program is a Mess

Monday, May 12, 2014

Wall Street Journal, April 27, 2014

…A new report by the Federal Reserve Bank of New York finds that as of the fourth quarter of 2012 only about 40% of student borrowers were paying down their loans…

…A whopping 14% of borrowers who were not officially delinquent had the same balance as the previous quarter and 30% saw their balances increase.

That’s because borrowers who can’t afford to pay down their loans can ask the government for a deferment or forbearance, which freezes their payments while interest continues to accrue. During a deferment, Uncle Sam pays the interest on subsidized loans. To qualify for either option, borrowers merely need to claim an economic hardship or return to school…Student loan debt nearly tripled to $966 billion in 2012 from $364 billion in 2004, but not merely because more students are going to school and taking out bigger loans. The Fed report’s major finding is that government programs intended to prevent defaults are actually causing many borrowers to rack up more debt. (emphasis added)

Our Response & Your Comments

Oregonians facing college also face rising tuition (30% increase between 2009 and 2012). Let’s look at how government’s good intentions are actually causing the problem:

  1. National leaders start with the premise “Every kid needs to go to college.” No – every kid doesn’t. We all know successful adults who didn’t go to college.
  2. Building off that flawed premise they set out to make it easier to go to college by dishing out wheelbarrows full of (your) money to directly pay tuition or loan money to students so they can pay for it. College presidents see this avalanche of dollars rolling their way, smile, and raise tuition to absorb it.
  3. As tuition continues to rise government gives and loans more and more money on increasingly generous terms. And the cycle – funded by us – continues.

So – Who’s making college more expensive? The same geniuses who set out to help kids go to college. Brilliant!

Website: Defining Delinquency Down – WSJ.com

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