21 July 2018

Enrollment in Student-Debt Forgiveness Programs Soars in 2014

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Two federal programs that offer to wipe away huge accumulations of student debt have grown at a rapid clip this year, putting them among the government’s fastest-growing forms of financial assistance.

The [Wall Street] Journal reported last week that enrollment in the plans—which allow students to rack up big debts and then forgive the unpaid balance after a set period—surged nearly 40% in the second half of 2013.

The growth of the programs hasn’t slowed. The number of borrowers in the income-based repayment programs climbed 24% between January through March to 1.63 million, the Education Department said.  The amount of debt absorbed grew by 22% to $88 billion—now nearly a 10th of all outstanding federal student debt.

At that rate, the government took on more than $5.3 billion per month in potential student-debt liability in the first three months of the year.

Interest in the programs began to surge in the middle of last year as the Obama administration promoted the programs through emails to borrowers and on the Internet. In the nine months through March, enrollment is up a staggering 72%.

The programs’ popularity comes as top law schools have taken to advertising their own plans that offer to cover a graduate’s federal loan repayments until outstanding debt is forgiven—opening the way for free or greatly subsidized degrees at taxpayer expense.

Expanding use of the programs, which have been rolled out and enhanced over the past several years, have mixed implications for borrowers and taxpayers. The programs cap borrowers’ monthly payments at 10% to 15% of their discretionary income, often reducing monthly bills by hundreds of dollars. Those borrowers are now more likely to stay current on their payments, avoiding default and the resulting damage to their credit.

Click here for the full article in the Wall Street Journal.

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