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What happens when the government ‘forgives’ $108 billion in student debt?

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student-loan-debt-1To reduce the number of people defaulting on student loans, President Obama has been promoting  income-driven repayment plans. The most widely available income-driven repayment plan for federal student loans—the Income-Based Repayment (IBR) plan—provides payment caps based on a borrower’s family size and income (150 percent of the poverty level). After making 25 years of these reduced payments, the remaining debt is “forgiven.” (If you work for the government or a non-profit the remainder may be forgiven after 10 years.)

This may sound like a way to help those on the lower rungs of the economic ladder from having to pay student loan debt as retirees. But the reality is that the program is aimed more for white collar professionals than the working class. As the Wall Street Journal notes, “Growing evidence suggests many of the most hard-pressed borrowers—college dropouts who owe less than $10,000—aren’t taking advantage of the programs, while workers with graduate degrees, such as doctors and lawyers who don’t necessarily need help, are.”

In a report released this week, the Government Accountability Office (GAO) reported that $108 billion will be “forgiven” by the federal government. And that’s just through the current school year. As new students enroll and take on debt they can’t (or simply won’t) repay, the number will increase significantly.

Of course the debt isn’t really “forgiven” since it was already paid to colleges and universities (who have no intention of giving it back. What debt forgiveness means, as economist Don Boudreaux explains in this video is that the debt is merely being transferred to the American taxpayer.

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Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

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