(THE FEDERALIST) The Congressional Budget Office (CBO) recently released a new assessment of the cost of the federal government’s income-driven repayment (IDR) plan for student loans. The numbers are depressing. The federal government expects to write off $207 billion in student loan debt in the next decade.
How did we get here? Back in the 1960s, based on the notion that going to college is a good investment and hoping to level the playing field for minorities and the poor to go to college, President Lyndon Johnson signed the 1965 Higher Education Act. It lets the government guarantee student loans made by private financial institutions, essentially putting all risk on the shoulders of taxpayers.
President Richard Nixon followed with the Higher Education Act of 1972, which codifies the system we have today: students can get a combination of grants and loans from the federal government to pay for college. The 1972 act also established Sallie Mae, a government-sponsored enterprise. Sallie Mae was authorized to borrow from the U.S. Treasury at below-market rates to purchase federally guaranteed student loans from banks, thus freeing capital so private banks could make even more student loans.
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