” ‘Public Service’ Loan Forgiveness: A Flawed White House Aid Plan”

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….

via Forbes.

Two problems with this.

The first is that we’re creating a moral hazard problem, as happens whenever we subsidize or reward unwanted behaviors (at the expense of those who were intelligent, frugal, careful, etc.) This is part of a larger problem in that we frequently solve our problems by simply paying off the people who behaved stupidly (mortgages come to mind, but also various other forms of default).

The second, larger problem is that we should not be encouraging people to take government or nonprofit jobs at a time when these areas are already costing more than we can afford, and when we have too few people creating the value that actually generates the economic growth that pays for such services.

If your soup is too salty, you don’t add more salt.

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…

…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.

via Forbes.

There’s no student loan forgiveness program for mothers who raise their own children, but there is for some daycare workers; and student loan forgiveness may be yours if you work for the government in some capacity, but not if you earn a low salary in the private sector.

via CNS News.