Flood Of Students Demanding Loan Forgiveness Forces Administration Scramble

Tyler Durden's picture

"Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone," is a study's warning over government plans that allow students to rack up big debts and then forgive the unpaid balance after a set period. As WSJ reports, enrollment in student debt forgiveness plans have surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion. The administration is looking to cap debt eligible for forgiveness, as President Obama's revamped Pay As You Earn scheme has seen applications soar and is estimated to cost taxpayers $14bn a year. The 'popularity' of the student loan bailout plan surged after Obama promoted it in 2012, and now the administration must back-track as costs have massively outpaced government predictions.



We have been aggresively focused on the government's blowing of the student loan bubble...

Student debt has nearly doubled since 2007 to $1.1 trillion, disproportionately driven by the growth in graduate-school debt.

And questioned the need to incur such massive credit-fueled costs of tuition only to gain a low-paying job...

there is no point in trying to preserve the old regime. Today's emphasis on measuring college education in terms of future earnings and employability may strike some as philistine, but most students have little choice. When you could pay your way through college by waiting tables, the idea that you should "study what interests you" was more viable than it is today, when the cost of a four-year degree often runs to six figures. For an 18-year-old, investing such a sum in an education without a payoff makes no more sense than buying a Ferrari on credit.

And while government plans are nothing new, Obama has aggressively promoted them...

The government has offered some form of income-based repayment since the early 1990s, but few studentsfound the terms enticing. But in 2007, Congress allowed borrowers working in nonprofit and government jobs to have unpaid debt forgiven after 10 years, and cut monthly payments for new borrowers to 15% of discretionary income.


In 2010, it cut those payments to 10% for borrowers who took out loans from 2014. A year later, Mr. Obama, through executive action, moved up the date when borrowers could qualify for the new terms, creating a program for those who took out loans from 2011. The White House this year has proposed making the program available to all student borrowers, regardless of when they signed their loans.


The popularity of the programs surged after the Obama administration began to promote them, starting in 2012, on the Internet and later through email to borrowers.

And it seems they are ripe for abuse...

"Income-based repayment can be a way for students responsibly to manage debt, but it should not be a bailout for students who borrow too much or for schools who charge too much," said Sen. Lamar Alexander of Tennessee, the ranking Republican on the Senate Education Committee.

But, as usual, the government screwed up...

The plans' long-term costs have greatly outpaced the government's predictions. In the last fiscal year, debt absorbed by the repayment plans from the most widely used student-loan program—Stafford loans—exceeded government expectations from a year earlier by 90%.




A report Monday last week from the Brookings Institution, a centrist think tank, offered one of the few preliminary examinations of the programs' impact. The most popular plan could cost taxpayers $14 billion a year if it becomes available to all borrowers as Mr. Obama has proposed, while fueling tuition inflation, it said.


"Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone," the study said. The authors recommend scrapping the forgiveness provisions.

Sure enough everyone piled in looking for their handout...

Enrollment in the plans—which allow students to rack up big debts and then forgive the unpaid balance after a set period—has surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion, U.S. Education Department records show.


Which means costs are soaring and the administration feels the need to do something to fix what it had broken by intervening once again...


The Obama administration has proposed in its latest budget released last month to cap debt eligible for forgiveness at $57,500 per student. There is currently no limit on such debt.


The move reflects concerns in the administration not just about the hit to the government, but over the risk that promising huge debt forgiveness could make borrowers and schools less disciplined about costs. Colleges might charge more than they would otherwise, leading students to borrow more.

And so is the government about to pop the student loan bubble by spoiling a good thing - unlimited debt forgiveness - for students and trickling down that credit tightening impact on colleges only to happy to raise tuition costs to reflect the credit-forgiveness-adjusted amount of money on the table?

Source: The Wall Street Journal

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Shizzmoney's picture

TBH, what's worse: a college grad with 100k+ debt making $50k/year; or HS grad with no debt making 33k/yr?

"Consumers" are choosing the ladder:


And good for them. Fuck debt and fuck this bullshit system.

TruthInSunshine's picture

1) Borrow 80k to 200k in student loans (to attend the 8 year associates degree program at the University of Phoenix, ITT Tech, Everest University, that place that guarantees you will make oodles of money repairing Harley Davidsons, etc.).

2) Buy Lululemon, Priceline, Herbalife, etc., stock & call options with the loan money.

3) Reap 20x your student loan money that you invested.

4) Default on loan but keep the cool 1.6 million to 4 million, yo!

Ka-Ching, Bitchez! Ka-Ching!

Billary/JebShrub 2016

Badabing's picture

we need Obama ed





Billy Sol Estes's picture

Can't default on Student Loans, death is the only way out.

MagicHandPuppet's picture

Sometimes I wonder if I'll regret paying off all of my student loans.  I suspect there will be a student loan "jubilee" one day... and the tax payers will be led to believe that they are getting a nice favor.

Ying-Yang's picture

" unlimited debt forgiveness"

Yeah, dis is wat we all want, gimme some of that!

Latina Lover's picture

We should send the students to fight in the Ukraine and when they die, we can collect on the insurance.

Signed the Banksters.

Arius's picture

seriously, it can be established a debt forgiveness program similar to the latinos getting the green card.

there were many latinos who went to Iraq and Afghanistan in order to receive the green card.


It might be a hard sell to Americans who are used only to receive for free,but guess what there is no free lunch ... you want a debt forgiveness go and fight for it ...

why are these students so special and different from latinos or even US army people who went into army in order to get some education ... most of the people who join the military do it because they want to make a living even at the price of risking their lifes ...


Pairadimes's picture

"...costs have massively outpaced government predictions."


Correct me if I am wrong, but I am almost certain I have heard this before.

g'kar's picture

If they forgive the loan debt, the IRS will call it income and send the debtor the tax bill like they did with home debt forgiveness.

TruthInSunshine's picture

FSA mobilizing again.

Billary will not miss seizing this opportunity to spread a message of repackaged Hope & Change in 2016.

CheapBastard's picture

Mr Ben Dover will pay. No worries.

Move along.....nothing to see here ... just moar FSA stuff....

mjcOH1's picture

"If they forgive the loan debt, the IRS will call it income and send the debtor the tax bill like they did with home debt forgiveness."


That's Old Think, dude.   We're in the vote buying business here.    We're already handing out 4 years of beer money and free housing for Black/Women's Studies in exchange for the debt foregiveness vote.   Let's not pretend we'll be harshing the buzz by calling that income when the (shrinking) pool of taxpayers get handed the bill on default.

g'kar's picture

"That's Old Think, dude."


Too old to think any other way. However, you are correct.

laomei's picture

Actually, that's exactly what will happen for all the IBR programs and whatnot once they hit the required number of years.  It's actually an incentive to earn less or go overseas, as overseas you get the tax exemption which knocks your AGI to $0 and thus removes all payments.  In fact, you can go one further.  Props to whoever does it first.

Find a 501c3 bullshit charity and have a "donation" made which covers your salary for the year.  Best to do it in the name of the benefactor, ideally someone who could use the deduction.  Then split the deduction with said person.  They get a record of charity and a tax writeoff, you get a job which will knock out your debt in 10 years of "service" and possibly even profit off of it.  Meanwhile, you base yourself overseas as a remote employee (web something services whatever) to eliminate any tax obligations and work your real job.  The only tax you get hit with is FICA, which sucks, but you make it back from the tax-refund kickback scheme and you increase the number of pay-in years you have under your belt.


If you are under a 501c3, in 10 years of IBR, you end up with full forgiveness and NO TAX implications from said forgiveness. 

A Nanny Moose's picture

Sounds like it might be contagious. If you get to close, be sure to wash yourself thoroughly. Moar antibiotics!

Dr_D's picture

Its called (hyper)inflation - the fed is doing all it can to print more as we speak...

TheFourthStooge-ing's picture

No shit. I mean, c'mon, the Bernank was juicing things at 85 billion clownbux per month.

Obama's revamped Pay As You Earn scheme has seen applications soar and is estimated to cost taxpayers $14bn a year.

...or about 5 BDEs (Bernanke Day Equivalents). Seems like small potatoes.

TruthInSunshine's picture

BDEs have been replaced by YIUs; Yellen Inflationary Units

Henry Chinaski's picture

No. It is all part of the plan to make higher education an entitlement.  When enough people are "unfairly" burdened by student debt, there will be an outcry to have another FED Govt bailout. The bailout will be predicated on an universal college education entitlement program that will be funded by a payroll confiscation program like social security and medicare.

Canoe Driver's picture

Hey, this post contains an insult to Ferrari buyers. Correction: it's much wiser to buy a Ferrari on credit than to spend an equivalent amount on an "education," and then go to work at the mall.  With the Ferrari, there is considerable residual value. Not so with the "education."

Also, what does it say about current government morality when the Feds will limit the loan foregiveness program to a reasonable amount, here $57,500, but will take no such action to limit the student debt itself, to a congruent reasonable amount?

Even if they limited all student borrowing to $57,500 per head, in aggregate, without explicitly limiting tuition itself, the effects would be very positive. Effectively, the student loan bubble would immediately burst, and tuition would have found an upper limit, which is healthy for all. The notion of using endless credit to support ever higher prices, both for education and for housing, is purely inflationary. Thus, even university administrators, getting unending salary increases, are deluded because their actual purchasing power is going in the toilet.

I am a cash home buyer who is having to add $200k a year to the purchase kitty just to keep up with the inflation in housing.  It's not just the overt price increases, but the fact that the pool of available homes for a given price is constantly getting older, or the parcel is shrinking, etc. It's all currency devaluation, period.

One gets the feeling that no one is at the helm of the ship of state. It's all so very stupid.

SamAdams's picture

Sorry if I'm desensitized to the predicament, but I thought $72 billion was just something that the FED prints every month forever?  I'm failing to see an emergency here...  Just print $72 billion, poof, problem solved....

Isn't that the solution?  Isn't that what the solution has been since 2008?  Has something changed here?  Just have the FED add to its $40 billion monthly of mortgage backed securities a few billion of student loan securites.  Expand that balance sheet.  Keep going, you are going to own it all!  Maybe eventually, the US will default to the FED, the FED will then default to China which will then own the FED shares on the cheap using all that funny money we sent them.

This is gonna work out great!

James_Cole's picture

Sorry if I'm desensitized to the predicament, but I thought $72 billion was just something that the FED prints every month forever? 

They like to harp about student loan debt because it's a good smokescreen. Right along with unions and teachers, the other ultimate destroyers of economies lol


^I wonder how that happened? 

Somehow other countries haven't had the same explosion in costs...even *gasp* without the benefit of king dollar. 

And again because it's the only chart that matters:


Buck Johnson's picture

Your exactly right, it's all a smoke screen.  I was going to also say that 75 billion dollars is chump change compared to what we have been doing month to month for years let alone the trillions that was used to bailout the banks on top of that.  They are setting up in a row a bunch of scape goats for when the economy implodes and people need someone or group to blame.  You see we go to college to get a high salary position that business wouldn't give us without a degree.  But yet our govt. allowed those same businesses to outsource and insource foreign workers for less because the American worker both hourly and salary was demanding to much for pay and benefits.  We had to go to college and rack up that debt because we wouldn't be able to buy those 100,000 dollar or more houses on a waitress salary or on 33 thousand a year (if you can find that without a degree). 

American businesses and govt. want their cake and eat it too.  You see I wouldn't mind a dollar an hour salary, not a bit.  But businesses and govt. would have to bring the price of goods and services down to the new salary that most would be getting.  So that house would be worth 2,000 dollars instead of 100,000 dollars.  A 60 inch flat screen LG television would be 200 dolllars instead of 2,000 etc. etc..  They don't want that and that is why our country is going through Stagflation.

seek's picture

One way or another there will be a jubilee -- either people will give it to themselves by simply not paying and going the EBT route (and isn't that comical, incentivizing the most educated to not work, because they'll be better off) -- or because it will be a thinly veiled bailout of the banks that funded the student loans.

I imagine there's going to be some interesting hooks for any official debt forgiveness, e.g. 5 years of work in the inner city for free, etc.

onewayticket2's picture

.....and it begins.  articles about Student Loan Forgiveness.

either this election or they'll give it to Hillary....either way, the students are going to get their bailout (in exchange for votes).


just watch.

Serenity Now's picture

Seek, they already have that.  You can get student loans "forgiven" if you do "public interest" work.

It's a triple whammy for the taxpayer because:

1.  Those jobs are usually taxpayer-funded jobs in the first place;

2.  Those jobs don't usually add anything to the economy (nor taxes);

3.  Congratulations!  You now get to pay off the student loan, too!

centerline's picture


What will happen first is private colleges going bust.  ROI is going to fuck them up as people figure out the BS.  State colleges will fail next but will get bailed out.

Here is the ringer.  The private colleges will reorganize under bankruptcy and come back with costs that .GOV wont be able to beat.  That is when the S hits the real fan.  The public wave is going to crash and lead to a private wave of investment.  It is just the cycle of things.

The real problem of course is the takedown of .GOV by its own bloated, corrupt weight.  That is how we face some sort of mad max or similarly sucky outcome.

CH1's picture

I suspect there will be a student loan "jubilee" one day

Yeah, but those motherfuckers will have some ugly strings attached.

FreedomGuy's picture

I believe all those socialist professors who think business profits are the source of all evil, who do a couple classes a week for over $100k pay and benefits, who believe government should control the price of everything...should all donate a large portion of their pay to make higher education free or a "fair" price...which would be nearly free by most reckoning.

Yer, put your socialist actions where your (bullshit) socialist mouth is.

eatapeach's picture

Isn't a collapsed dollar a total jubilee?

PT's picture

Why do we have student loans anyway?  If the courses are so good then wouldn't they pay for themselves via higher incomes and thus higher taxes?  Aren't student loans just double dipping?  Or are all your unis private?

The largest demographic, the baby boomers, have just come out of their peak earning years (okay, yes, they're all starting to retire now).  Didn't that mean higher tax revenue and proportionately less education costs per head of population?  Why does all the baby-boomer rhetoric only ever work in one direction?

If student loan costs are too high, doesn't that mean an over-supply of students ( or undersupply of teachers - again, why would we have a shortage of teachers if the baby-boomers are at their peak level of experience? )  If there is an over-supply of students, wouldn't that suggest an over-supply of graduates and so lower salaries in the future?  Wouldn't you be better off taking a cheaper course that no-one wants to do so you can be the only graduate and command a higher price for your skills?  

Actually, wouldn't you prefer to have a boss come up to you and say, "Quick!  I desperately need you to learn THIS so I can make a huge profit!  I'll pay for your tuition!  I'll pay for your accommodation!  Just do it!"  Err, those bosses are VERY hard to find but they do exist.  But you'll never find one while you got your nose buried in a book.  Sorry I can't be more helpful.


Ghostdog's picture

Herr President is drooling over that prospect of vote buying

wee-weed up's picture



Yep, Sugar-Daddy Obozo's pen will make them all go away.

"Stroke of the pen... law of the land... kinda neat!"

libertus's picture


Please check out oplerno.com. There are a lot of people working to create a new disintermediated higher education system that rewards great teaching has small classes and keeps costs low for students. It's all about leveraging technology and actually producing a transparent marketplace that links students and teachers within an accrediated institution. They just got approval to offer courses for credit by the State Board of Education in Vermont--the first step after only 8 months in operation. Time for a total reset in higher ed. This is one answer!

Help them get the word out. 


Son of Loki's picture

"Just walk away."

I have no doubt inncoent taxpayers are going to hit between the eyes with this, "loan forgiveness" stuff.

onewayticket2's picture

check out SoFi...they're skimming all the best loans out of the govt pool....the top 100 schools (where the default rate is the lowest)....leaving only the adverse selection pool to hit tipping point more quickly.

peterZ's picture

not even...the IRS will come after the family.

Antifaschistische's picture

build stellar credit, pay off student loans with Visa/MasterCard/Chase whatever cards or personal loans from a bank.....sit tight for a year, then file for bankruptcy and hand them the pile of credit cards.

Note: may require help from Mom & Dad to build your credit, but don't use the cosigner feature except for the very first card with a $1k limit, when you're a freshman.

August's picture

You could always defect to Eurasia or Eastasia.

0b1knob's picture

Loans which can't be repaid won't be repaid.   It will all be written off one way or another.   Of course it will be done in a manner that will make the ex-students Democrat vote slaves forever.

Greenskeeper_Carl's picture

wont work like that, at least not as much as they would like. my wife doesnt like this govt any more than i do, but she would gladly let them take those loans off her hands. my main worry is that eventually they come after MY assets simply because we are married, even though we hadnt even met when she took those loans. i don't really think thats fair to the people who have worked hard and paid theirs off, but somethings gotta give. its tough to explain why its wrong to people who witnessed what the govt did for the banks after they got in over their heads in bad debt. especially since they are just creating this money out of thin air

Billy Sol Estes's picture

My GF will be $125k in the hole when she graduates. She "hates" Obama but loves the free birth control and is hopeful about debt forgiveness.

Chump's picture


Rubbish's picture

Damn that birth control didn't work honey.

centerline's picture

If she is good person, no worries.  This broken-ass world is going to break.  Just be ready for it.

Punishing people because they did not understand or got leveraged by whatever insecurity or imaturity... whatever reason... is just criminal.  Predatory.  Never ever think anything different.  The world as it is now eats good people every day.  And good people need taking care of.

Yeah, there are those of us who see this and are watching.  We wont forget.  We wont forgive.  Time has long past for forgiveness. 

Canoe Driver's picture

"My GF will be $125k in the hole." Poor choice of words. But then, the hole is often the solution to the female debt conundrum.

$125k for what? Another law student, no doubt.

SoCalBusted's picture

If it flies, floats or fucks, rent it.

BobRocket's picture

You haven't quite grasped it have you, whilst you are still alive you owe the money, if you pay it off you shrink tha balance sheet. If you die you foreclose, this means that the bank (remember them) is on the hook.

They make their day money on the fees they charge on new loans.

When debtors die it makes a hole in their balance sheet. You, because you have assets will make good that hole.

Whilst the debtors are alive the debt can be re-hypothecated via the fed into a new loan, new loans attract fees.

(in actual fact, when a non-performing non-dischargeable debt is lodged with the fed it cancels an existing repayable debt which allows the bank to create (from thin air) new money)

It is money for recycled old rope, that is why they call themselves the Masters of the Universe