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Uncle Sam’s Big StudentLoan Problem
Policy makers probably didn’t realize how much Public Service Loan Forgiveness would cost.
Updated Oct. 8, 2016 2:43 a.m. ET
Follow Up | Dow Indicator | Preview
Oops: Policy makers likely didn’t realize how expensive Public Service Loan Forgiveness would turn out to be. Illustration: Bill Waitzman for Barron's
The cost of a college education is rising for everyone in the U.S., even Uncle Sam. A government program forgives the federal loans of grads who take on
publicservice jobs and pay 10% of their discretionary income toward the loan balance for a decade. It’s poised to cause headaches for the government once
borrowers begin to cash in next year.
Policy makers probably didn’t realize how costly Public Service Loan Forgiveness would be when they approved it in 2007. The program still isn’t widely used,
but a quarter of the U.S. workforce has an eligible job—meaning a position with a federal, state, local, or tribal government (including schools and the military),
child or family services agency, a 501(c)3 nonreligious nonprofit, or tribal college—and the folks taking advantage of the program tend to carry a lot of debt.
Although undergraduate debt averages $30,000, borrowers using PSLF have median debt of over $60,000, Education Department data show, and 30% of them
have over $100,000. Since most undergrads can’t take out more than $31,000 in federal loans, this suggests that many using the program got costly graduate
PSLF is “agnostic to the amount of debt you take on,” says Jason Delisle, a research fellow at the American Enterprise Institute. A borrower with $30,000 in
undergraduate debt gets the same repayment terms as someone who tacks on $100,000 to get a higher degree. He argues that this leads to perverse
incentives, enticing students to get grad degrees they know they won’t have to pay for, and allowing schools to charge more. There’s a lesson in here
SoSo Jobs Report
Nonfarm payrolls rose a lessthanexpected 156,000 in September, with the jobless rate ticking up to 5%.
But some analysts noted that jobs are often initially underreported in September, and many still see the Fed tightening in December.
Ups and Downs
U.S. crudeoil prices passed $50 a barrel for the first time since June, on a sharp reduction in inventories. Gold slumped 3.3% in one day, its biggest swoon in
more than a year, on fears of higher interest rates. On the week, gold fell 4.9%, to $1248.90 an ounce. The British pound hit a threedecade low against the
dollar of $1.1491, on worries about the United Kingdom leaving the European Union.
A Nontaxing Subject