Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

Forbes.com

 

"Public Service" Loan Forgiveness: A Flawed White House Aid Plan

August 27, 2013

By Howard Husock

In a series of speeches last week, President Obama promoted policies designed to “make college more affordable and make it easier for folks to pay for their education.” He attracted attention mainly for the novel idea that a federal ratings system might help borrowers decide which schools are really worth the cost. But the President also pushed for an expansion of an existing, but not well-known program, known as “pay as you earn,” which ties—and limits—student loan payments to the ability of borrowers to pay. That proposed expansion would also extend the reach of something called the Federal Public Service Loan Forgiveness Program, which makes it possible for college graduates who take jobs in government or non-profit organizations to get big breaks on their student loan payments. While it may be an attractive program on the surface, it should not be expanded. Rather, it should be rethought altogether.

Originally passed in 2007 as part of College Cost Reduction and Access Act, the Public Service Loan Forgiveness program makes it possible—if you take and keep a designated type of job—to make loan repayments for just 10 years, rather than 25, with the remainder of the interest and principal written off. That puts all taxpayers, rather than the borrower, on the hook. The program—which the President is hoping will attract more customers than it has to date—is quite specific about what types of jobs qualify as public service. They include government at any level—including public education—as well as organizations offering everything from child care to services for the elderly and disabled. A job at any tax-exempt organization qualifies—except for labor unions or partisan political groups. The implicit theory here: that such jobs are relatively poorly paid and that taxpayers have an interest in having well-qualified college graduates take them.

Such a collection of good causes make it hard to oppose, but the program does present serious problems. First, it’s become clear, especially since the financial crisis, that, even if government salaries of some types may be lower than their private sector counterparts, public employment offers a combination of job security and retirement benefits that are actually the envy of those in the private economy. At the same time, for those who go on to careers as lobbyists, public employment can also be what The Wall Street Journal has termed “deferred compensation.” What’s more, as the National Commission on Public Service, chaired by Paul Volcker, pointed out as long ago as 1989, there are plenty of barriers to our having an effective government—including outdated civil service rules and poor recruiting strategies—besides sheer salary levels.

But the larger problem with the program—one that includes its provisions for non-profits as well as government—has to do with the concept of government seeking to influence the career choices of college graduates in the belief that some jobs do more than others to serve the public interest. Both the government and the non-profit sectors, after all, ultimately rely on the growth and prosperity of the private economy. As Carl Schramm, former head of the Kauffman Foundation, has long argued, entrepreneurs—from Steve Jobs to Sergei Brin and countless others—provide the hope for economic growth. But private sector employment of any kind is effectively made less attractive by the terms of federal student loan forgiveness program. That is not, to coin a phrase, what made America great.

Even those who are devotees of the non-profit sector—and this column, after all celebrates the virtues of American civil society and what it can do that government cannot—should be skittish about the Obama proposal. The program’s long list of qualified organizations raises the prospect that, at some point, Washington will decide to favor certain non-profits at the expense of others. We are already seeing something like this in the White House Social Innovation Fund, which encourages private philanthropy to invest in ameliorating a specific, and limited, set of social problems. Some, including some in Congress, have raised the possibility that the charitable tax deduction itself should be confined to select types of non-profits. (I elaborate on this in my forthcoming book Philanthropy Under Fire, published by Encounter Books).

Participation to date in the income-based student loan repayment plan which the President proposes to expand and promote has been limited. Indeed, Time Magazine has reported that only 630,000 of some 37 million student loan borrowers have availed themselves of the option, despite its being made more attractive, in 2010, when the repayment requirement was reduced to 10 percent of income for those who qualify on the basis of earnings and who make payments faithfully. Only a fraction of even those fall into the public service loan forgiveness category.

Still, we should be careful in pushing to increase that number. All sorts of problems arise when government decides how to allocate financial capital—as recent New York Times reporting about the poor record of Department of Agriculture loans reminds us. We should be no more confident of the wisdom of the government when it comes to allocating human capital—that is, the talents of the American people.

Original Source: http://www.forbes.com/sites/howardhusock/2013/08/27/public-service-loan-forgiveness-a-flawed-white-house-aid-plan/

 

 
PRINTER FRIENDLY
 
LATEST FROM OUR SCHOLARS

The Real Challenge When Police Use Lethal Force
Stephen Eide, 12-15-14

Why Cops Need To Sweat The ‘Small Stuff’
Nicole Gelinas, 12-08-14

A Bill To Loosen Police Discipline
E. J. McMahon, 12-08-14

More Subsidies For Big Wind
Robert Bryce, 12-08-14

Bill Slanders His Cops
Heather Mac Donald, 12-07-14

What The Numbers Say On Police Use Of Force
Steven Malanga, 12-04-14

Detroit's Bankruptcy and Its Painful Reforms
Stephen Eide, 12-04-14

The EPA Pours On The Pain With New Ozone Regulations
Diana Furchtgott-Roth, 12-03-14

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494