One hundred eight billion dollars, that`s the amount of student loan debt that the U.S. federal government is set to pay for in the coming years.
Why is that significant? Because it`s a lot more money than the U.S. Education Department said it would be.
For years, student loan debt, the money that U.S. students borrowed to pay for college has been soaring. To help borrowers avoid defaulting, to avoid missing their payments, the Obama administration strongly encouraged them to participate in a government program that limits what they actually have to pay back. The administration says defaults have decreased as a result.
But according to "The Wall Street Journal", a new report from the Government Accountability Office says the Education Department badly underestimated what these debt-reducing plans would cost the federal government.
This isn`t new. President Clinton first introduced income-based repayment. Eligible participants had to, one, have income that was low in relation to their debt, right? And then, second, taken out loans after 2007.
Well, with the revised pay-as-you-earn, the Obama administration sort of widened the net and removed those restrictions for borrowers of federal direct loans. The administration pushed the program aggressively to those borrowers. A borrower`s monthly payment is capped at 10 percent of their income and the remaining balance is forgiven after 10 years or 20 years, depending if you work in the public or private sector.
It seems great, but who pays for this loan forgiveness? It`s taxpayers.