Last week, the Biden administration announced that it would unveil a second attempt at issuing blanket student loan forgiveness within the next few months. The announcement comes more than a year after its first attempt was blocked by the Supreme Court.

"The Biden-Harris Administration made a commitment to deliver student debt relief to as many borrowers as possible as quickly as possible," said Education Secretary Miguel Cardona in a statement last Wednesday. "And today, as we near the end of a lengthy rulemaking process, we're one step closer to keeping that promise."

The announcement builds on a release in April of draft rules that aim to enact student loan forgiveness primarily by expanding existing loan forgiveness programs. The Education Department says it has begun notifying borrowers about the coming rules and informing them about a deadline to opt out of forgiveness. 

The proposed rules target specific groups of borrowers, including borrowers who now owe more than they originally took out in loans due to accumulating interest, borrowers who have been in repayment for decades, and those who are eligible but not enrolled in existing forgiveness programs. Borrowers who enrolled in low-value degree programs, such as those that "failed to provide sufficient financial value, or that failed one of the Department's accountability standards for institutions" are also eligible for new forgiveness efforts. 

Last week's announcement also stated that those eligible would most likely receive forgiveness automatically, with no application or additional steps required.

If enacted, the rules could end up affecting even more borrowers than would have been affected by the Biden administration's first forgiveness plan. The Education Department predicts that if the proposed rules go into effect, the Biden administration would have made over 30 million borrowers eligible for forgiveness through its efforts over the last three years. In contrast, Biden's first attempt at blanket student loan forgiveness was predicted to impact just 27 million eligible borrowers.

"If finalized as proposed, these new rules would authorize relief for borrowers across the country who have struggled with the burden of student loan debt," reads last week's statement. "The Biden-Harris Administration has taken historic steps to reduce the burden of student debt and ensure that student loans are not a barrier to educational and economic opportunity for students and families."

The Education Department predicts that the finalized rules will be released sometime in the fall. However, with the election in November looming, it's doubtful whether the department can actually provide forgiveness before the end of Biden's term. And considering that legal challenges are almost certain to follow any attempt to enact large-scale loan forgiveness, it's unclear if there is any realistic chance that the Biden administration can enact this plan. At the moment, these latest efforts might be best thought of as a last-minute political stunt designed to energize young, college-educated voters rather than an earnest policy effort.

The post Biden Administration Says It Will Finalize Second Attempt at Blanket Student Loan Forgiveness This Fall appeared first on Reason.com.

In 2024, the federal budget deficit is estimated to reach nearly $2 trillion, according to new projections released by the Congressional Budget Office (CBO) this week. In February, the agency predicted that the deficit would only be $1.58 trillion. However, spending increases have caused the projected deficit to increase by $400 billion, a staggering 27 percent hike. 

According to the CBO, 80 percent of the spike in the deficit can be blamed on four sources of government spending.

The largest source, responsible for $145 billion of the increase, is changes to the federal student loan program that have resulted in massive waves of federal student loan forgiveness and increased forgiveness going forward.

Second, the CBO's report details how the costs for "deposit insurance have increased by about $70 billion because the Federal Deposit Insurance Corporation (FDIC) is not recovering payments it made when resolving bank failures in 2023 and 2024 as quickly as CBO previously anticipated."

Third, an additional $60 billion in cost increases came from additional legislation. And lastly, $50 billion in increased spending came from higher-than-expected Medicaid costs.

The long-term outlook for the budget deficit has increased too. In February, the CBO estimated that in 2034, the deficit would climb to $2.5 trillion. Its latest estimate now places that number as over $2.8 trillion.

"For the 2025–2034 period, CBO now projects that if current laws generally remained unchanged, the cumulative deficit would be $22.1 trillion. That amount is $2.1 trillion (or 10 percent) more than the $20.0 trillion the agency projected this past February," reads the CBO's report. "Measured in relation to the size of the economy, federal debt at the end of 2034 is now projected to equal 122 percent of gross domestic product (GDP); in February, debt at the end of that year was projected to equal 116 percent of GDP."

If the deficit continues to increase as the CBO predicts, the outcome could be disastrous. 

"As debt grows unabated, there is the risk of a sudden loss of confidence in bond markets, with investors demanding much higher interest rates that could trigger a debt doom loop and broader fiscal crisis," Cato Institute researchers Romina Boccia and Dominik Lett warned this week. "Congress and the Biden administration should cut spending now while the economy is growing and conditions are favorable for deficit reduction, alleviating pressure on interest rates and the federal debt to grow, and before a fiscal crisis forces their hands."

The post Federal Budget Deficit Forecast Jumps $400 Billion, Fueled by Student Debt Forgiveness appeared first on Reason.com.

Congressional Budget Office (CBO) projections provide valuable insights into how a big chunk of your income is being spent and reveal the long-term consequences of our government's current fiscal policies—you may endure them, and your children most certainly will. Yet, like most other projections looking into our future, these numbers should be taken with a grain of salt. So should claims that CBO projections validate anyone's fiscal track record.

So much can and likely will happen to make projections moot and our fiscal outlook much grimmer. Unforeseen events, economic changes, and policy decisions render them less accurate over time. The CBO knows this and recently released alternative scenarios based on different sets of assumptions, and it doesn't look good. It remains a wonder that more politicians, now given a more realistic range of possibilities, aren't behaving like it.

First, let's recap what the situation looks like under the usual rosy growth, inflation, and interest rate assumptions. Due to continued overspending, this year's deficit will be at least $1.6 trillion, rising to $2.6 trillion by 2034. Debt held by the public equals roughly 99 percent of our economy—measured by gross domestic product (GDP)—annually, heading to 116 percent in 2034.

The only reason these numbers won't be as high as projected last year is that a few House Republicans fought hard to impose some spending caps during the debt ceiling debate. The long-term outlook is even scarier, with public debt reaching 166 percent of GDP in 30 years and all federal debt reaching 180 percent.

No one should be surprised. To be sure, the COVID-19 pandemic and the Great Recession made things worse, but we've been on this path for decades.

Unfortunately, if any of the assumptions underlying these projections change again, things will get a lot worse. That's where the CBO's alternative paths help. Policymakers and the public can better see the potential risks and opportunities associated with various fiscal policy choices, enabling them to make more informed decisions.

For instance, the CBO highlights that if the labor force grows annually by just 0.1 fewer percentage points than originally projected—even if the unemployment rate stays the same—slower economic growth will lead to a deficit $142 billion larger than baseline projections between 2025 and 2034. A similarly small slowdown in the productivity rate would lead to an added deficit of $304 billion over that period.

Back in 2020, the prevalent theory among those who claimed we shouldn't worry about debt was that interest rates were remarkably low and would stay low forever. As if. These guys have since learned what many of us have known for years: that interest rates can and will go up when the situation gets bad enough. So, what happens if rates continue to rise above and beyond those CBO used in its projections? Even a minuscule 0.1-point rise above the baseline would produce an additional $324 billion on the deficit over the 2025-2034 period.

The same is true with inflation, which, as every shopper can see, has yet to be defeated. If inflation, as I fear, doesn't go away as fast as predicted by CBO—largely because debt accumulation is continuing unabated—it will slow growth, increase interest rates, and massively expand the deficit. To be precise, an increase in overall prices of just 0.1 points over the CBO baseline would result in higher interest rates and a deficit of $263 billion more than projected.

Now, imagine all these variations from the current projections happening simultaneously. It's a real possibility. The deficit hike would be enormous, which could then trigger even more inflation and higher interest rates. The question that remains is: Why aren't politicians on both sides more worried than they seem to be?

What needs to happen before they finally decide to treat our fiscal situation as a real threat? President Joe Biden doesn't want to tackle the debt issue. In fact, he's actively adding to the debt with student loan forgiveness, subsidies to big businesses, and other nonsense. Meanwhile, some Republicans pay lip service to our financial crisis, but few are willing to tackle the real problem of entitlement spending.

The time for political posturing is over. The longer we wait to address these issues, the more severe the consequences will be for future generations. It's time for our leaders to prioritize the nation's long-term economic health over short-term political gains and take bold steps toward fiscal responsibility. Only then can we hope to secure a stable and prosperous future for all Americans.

COPYRIGHT 2024 CREATORS.COM.

The post The Congressional Budget Office's Alternative Scenarios Forecast a Dire Economic Picture appeared first on Reason.com.

Following persistent technical issues with this year's updated, streamlined Free Application for Federal Student Aid (FAFSA) form, the Education Department has announced a $50 million program to help more students complete the form—next year.

The chunk of funding is aimed at "expand[ing] the availability of advisers, counselors, and coaches to support students and contributors through the FAFSA applications," according to a Monday press release.

"We are determined to close the FAFSA completion gap," Deputy Secretary of Education Cindy Marten said. "The funding we're announcing today will support states, districts, and community-based groups [to] build capacity and leverage their power to ensure that every student who needs help paying for college turns in their FAFSA form."

FAFSA is required for any college students seeking federal grants or loans. Most colleges also use the form to determine how much institutional financial aid to offer students. In a typical year, over 15 million students and their families fill out the FAFSA form. But as of late April, successful applications are down 24 percent this year due to ubiquitous technical bugs in the updated form.

This year's issues stem from the Consolidated Appropriations Act of 2021, which mandated that the Education Department release a simplified version of the FAFSA form. The updated form was released in December—more than two months later than the typical release date. Almost immediately, the form was plagued with errors and bugs that made it nearly impossible to complete for many students.

FAFSA's own website details many of the issues with the form since its release. While most can be fixed with complicated "workarounds," some kept affected students from filling out the form for months. In March, the Education Department even announced that they had incorrectly calculated the completed forms of 200,000 students, leading to some possibly receiving more generous financial aid offers than they were actually eligible for.

Instead of publicly committing to solving these issues for next year's form, the Education Department is attempting to ameliorate its mistakes by throwing money at the problem. Why make a better FAFSA when you can pay people to shepherd students and their families through an infuriatingly complex process?

According to USA Today, the Education Department usually releases a draft version of next year's FAFSA in February or March, but that hasn't happened yet—hardly a good sign for next year's form.

While it's unclear whether students will have a smoother FAFSA experience next year, at least they can say they've gotten an apology. 

"I apologize to the students and families that have had to deal with delays," Secretary of Education Miguel Cardona said during a congressional hearing this week. "I know how frustrating that is."

The post The Government's Solution to FAFSA Chaos: Spend $50 Million More appeared first on Reason.com.

"I fixed student loan programs to reduce the burden of student debt for nearly four million Americans," President Biden bragged during his State of the Union address on Thursday night. "Such relief is good for the economy because folks are now able to buy a home, start a business, even start a family."

Despite failing to enact blanket student loan forgiveness, Joe Biden has still managed to forgive more than $130 billion in federal student loans since taking office in 2021—and due to a series of Education Department rule changes, even more loans are set to be forgiven in the coming years.

While Biden lauded his forgiveness scheme as "good for the economy," Biden's student loan reforms are in fact likely to make degrees more expensive to obtain in the coming years.

When the Education Department announced its original plan to forgive up to $20,000 in federal student loans per borrower in 2022, they also ushered in several, less attention-grabbing rule changes to the federal student loan program. Chief among them was a major change to income-driven repayment (IDR), a popular way for lower-income borrowers to repay their loans.

Under the REPAYE plan, previously the most popular IDR plan, borrowers were required to make regular monthly payments of 10 percent of their discretionary income (calculated as earnings above 150 percent of the federal poverty rate) for 20 years in order to receive forgiveness. But in 2022, Biden announced the Education Department would replace the REPAYE plan. 

In its place, the Saving on a Valuable Education (SAVE) plan is a significantly more generous alternative, only requiring monthly payments of 5 percent of borrowers' discretionary income (now calculated as earnings above 225 percent of the federal poverty rate), with forgiveness after just 10 years for balances less than $12,000. Late or incomplete payments would still count during the required repayment period, unlike under the REPAYE plan.

While income-driven repayment plans are generally targeted at low-income borrowers who might not be able to afford a traditional repayment plan, the SAVE plan is so generous that it is likely to attract a wide swath of wealthier borrowers. With borrowers required to pay back such a small portion of their loans, universities have a clear incentive to boost prices and encourage students to enroll in the SAVE plan.

"The system has gotten so generous that it's not really a loan anymore," Preston Cooper, a senior fellow at The Foundation for Research on Equal Opportunity told Reason. "It's more like a grant. And I think at that point, you'll start to see colleges saying, 'Hey, students aren't going to have to pay back their loans in full. So why don't we raise our prices, have students take out more loans, and the loans will just get forgiven by taxpayers?'"

In all, the new IDR plan is estimated to cost taxpayers nearly as much as Biden's original attempt at forgiving $475 billion over the next decade (blanket forgiveness was estimated to cost up to $519 billion). While Biden claimed that his recent forgiveness would help swaths of Americans "buy a home start a business even start a family," it certainly isn't typical taxpayers—the majority of whom do not have the benefits of a college degree, or the student loans to match—who will end up benefiting.

Ultimately, Biden's loan forgiveness efforts are best thought of as a purely political attempt to cater to a large portion of the Democratic base. Forgiving student loans does nothing to make it easier to attend college without taking on student loans—or for young Americans to reach the middle class, regardless of their educational path.

The post Biden Is Wrong About Student Debt Forgiveness appeared first on Reason.com.

On Wednesday, the Biden Administration announced $1.2 billion in additional student loan forgiveness for more than 150,000 borrowers. This particular round of forgiveness was previously announced last month, though the exact cost of the debt relief was not previously known.

"The Biden-Harris Administration has now approved nearly $138 billion in student debt cancellation for almost 3.9 million borrowers through more than two dozen executive actions," a Wednesday press release stated. "From Day One of his Administration, President Biden vowed to fix the student loan system and make sure higher education is a pathway to the middle class—not a barrier to opportunity."

This latest slate of forgiveness is part of the Education Department's sweeping changes to how the federal government handles student loan repayment. As part of the Biden Administration's original attempt to forgive up to $20,000 in federal loans per borrower, they also made several major changes to other student loan programs. Most notably, they introduced the Saving on a Valuable Education (SAVE), a new income-driven repayment (IDR) program designed to be much more generous than previous IDR plans.

For example, under the REPAYE plan, which was the most popular IDR plan before SAVE replaced it, monthly payments were set at 10 percent of borrowers' discretionary income, defined as earnings above 150 percent of the federal poverty line, with forgiveness coming after 20 years of consistent payments. 

For borrowers in the new SAVE plan, their monthly payment is only 5 percent of their discretionary income, which is now defined as income above 225 percent of the federal poverty line. If the borrower's balance is less than $12,000, they'll now get forgiveness after just 10 years.

As part of the SAVE plan rollout, the Education Department announced last month that any borrowers who have been paying back their loans for 10 years or more, under any program, and have a remaining balance of less than $12,000 can enroll in the SAVE plan and get automatic forgiveness. While the original announcement did not estimate how much forgiveness would be dolled out, Wednesday's update released the staggering $1.2 billion price tag.

This recent glut of loan forgiveness shows how, even if Biden's attempt at blanket loan forgiveness was defeated at the Supreme Court last year, that doesn't keep his administration from spending billions on student loan forgiveness. Biden's one-time student loan forgiveness proposal was estimated to cost taxpayers more than $500 billion, but the estimated cost of the SAVE plan over the next decade is almost as much, coming in at $475 billion. 

While the Supreme Court halted Biden's most outrageous attempt to forgive massive amounts of federal student loans, the Education Department's wide authority to make sweeping changes to student loan policy means that widespread debt forgiveness—and the huge bill to taxpayers—is here to stay.

The post The Biden Administration Has Forgiven Another $1.2 Billion in Federal Student Loans  appeared first on Reason.com.

This week's featured article is "The Real Student Loan Crisis Isn't From Undergraduate Degrees" by Emma Camp.

This audio was generated using AI trained on the voice of Katherine Mangu-Ward.

Music credits: "Deep in Thought" by CTRL and "Sunsettling" by Man with Roses

The post <I>The Best of Reason</I>: The Real Student Loan Crisis Isn't From Undergraduate Degrees appeared first on Reason.com.