Federal Plans That Forgive Student Debt Skyrocket

April 22, 2014
Wall Street Journal 
student loan news
Federal programs that wipe out some student debt are more popular than ever, but government officials want to limit them because of their costs and the risk that they could prompt colleges to charge more and students to borrow more. Enrollment in the plans rose nearly 40 percent in just six months and now includes at least 1.3 million borrowers on the hook for about $72 billion, according to the U.S. Education Department.

The fastest-growing plan,"Pay As You Earn," obligates borrowers to monthly installments equal to 10 percent of their annual income above 150 percent of the poverty level. The unpaid balances for those working in the public sector or for nonprofits are forgiven after 10 years. Private-sector workers also can see their debts erased after 20 years. Some institutions, including law schools at Columbia University and Georgetown University, offer some graduates additional aid to cover part of their minimum monthly payments under the federal plans.

The future cost of Pay As You Earn could reach $14 billion a year. The Obama administration has proposed a cap for debt forgiveness of $57,500 per student. While Congress is unlikely to pass changes to the programs this year, the administration has recommended other changes, such as extending the forgiveness window to 25 years for the most-indebted students. Administration officials say they want to curb eligibility for forgiveness while letting more borrowers repay loans based on their income, to make sure that the borrowers in the most need can benefit.

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