There are a lot of lessons in this.
The Public Service Loan Forgiveness Program promises to cancel any remaining student debt for those who work for the government or nonprofits if they have been making on-time payments for 10 years. Many teachers, public defenders, Peace Corps workers, and law enforcement officers fit the qualifications.
This October marks the 10th year of the program and the first time anyone will have made enough payments to get their debt wiped away. It’s unclear how much the program will cost the government when its starts to forgive those debts.
The program has been shrouded in some uncertainty for months.
On Wednesday, the Washington Post reported that the Department of Education is planning to propose ending the Public Service Loan Forgiveness Program.
“It would be absolutely detrimental to those of us who have planned our lives around this program. It would be the equivalent of pulling the rug out from under us,” said Daniel J. Crooks III, a government attorney who is expecting loan forgiveness from the public service program in six years.
He currently has more than $300,000 in student debt — after making payments for the past four years. He’s moved states to get a better job that still qualifies him for the debt relief.
The program could cost the government more than originally expected, according to the Government Accountability Office. The Obama Administration had proposed capping the amount borrowers could have forgiven at $57,500, but that proposal was never approved and forgiveness remains unlimited.
Lesson #1: This is a poorly conceived government program. The intent is not too insane. It is simply a taxpayer subsidy for people to go into fields of work that the government deems necessary. In fact, this program starts out well because the subsidy doesn’t kick in until after a decade of the person actually working in the requisite field. That’s much better than paying it up front.
Unfortunately, the rules are unclear and difficult to follow. People are investing a lot of time and borrowing a lot of money on faith that they are in compliance. Then, there isn’t a cap. What’s with the guy borrowing $300k and expecting the taxpayers to pay for it? Are we really that short of government lawyers?
Lesson #2: Woe to those who trust the government. People are borrowing thousands of dollars, planning their jobs, moving, etc. based on this government handout, and it could disappear overnight. I hope those folks have a Plan B.
Lesson #3: Good intentions can have bad consequences. While it may be in the public interest for the taxpayers to subsidize people entering into government or non-profit jobs (I question that interest, but I’ll be generous), doing so has other effects. How many people took on stupid debt for worthless degrees because they figured the taxpayers would pay it off? How many people are puttering away in a government job to get their loans paid when there are other industries desperate for workers? How many government employees went back to school for a degree they didn’t need because they expected it to be “free?”
Lesson #4: Times change, but government programs don’t. Let’s be generous again and assume that at the time this was passed, we were desperate for government and non-profit workers. Are we still? Are there other industries that could use some taxpayer support to funnel workers their way? Should we cut off the subsidy for government workers and instead move the same money to forgive loans for people who get tech degrees? Naaaahhhh… government doesn’t do that.