Concerns about the New Income Based Repayment plan

The new income based repayment (IBR) program for student loans makes loan forgiveness and payment reductions available to past, present and future borrowers whose earnings are below a certain threshold. Payments can be waived entirely. After 25 years of payments (or 10 if you work in the public or non-profit sector), any remaining balance is forgiven.

An anonymous reader emails us with some worries about the program.

• IBR will provide an incentive for low-income workers to quit their jobs and instead spend years pursuing sometimes valueless degrees. The downside risk of doing so is very low thanks to this program. If he or she can earn more money after college, only a small portion of the increased wages would go towards loan repayment. On the other hand, if he or she doesn't make more money after college, returning to the same low-paying job will essentially eliminate the debt. So it would seem that under the IBR program anyone working a low-wage job would have every incentive to head to campus for a few years on the taxpayer’s dime.
• The IBR program will also exacerbate the problem of superfluous graduate programs. Graduate students can easily run up six-figure student loan debts, often in academic subjects which have little or no economic return for society at large. For example, under IBR anyone could enroll to study art history, paleontology, 20th century lesbian literature, or any other topic de jour and spend an edifying six years accumulating a $150,000 debt. This hypothetical student could then go to work at a low-paying nonprofit organization and have a monthly loan payment not even sufficient to cover the interest on the amount borrowed. After 10 years of this "public service" work, the taxpayers would be left with the bill. And in a bad job market such as we currently have, thousands of unemployed college graduates flock to graduate schools simply because they can't find good jobs.
• Also objectionable is the huge distinction made by the IBR program between students who go to work in the private sector vs. those who don't. Private sector employees are required to work an incredible 15 years longer before loans are forgiven, irrespective of income. The implication is that private sector workers are somehow morally inferior.
  
• IBR will also be tuition-inflating, given that colleges and universities have historically set their tuition based on what the market will bear. So when university administrators realize that incoming students can now borrow recklessly with impunity, college administrators will have every incentive to further raise tuition.
  

Due to this program, students will be much less discerning about cost, and schools will raise tuition to exploit that. The only losers in this arrangement are taxpayers. For them, this program has the makings of a fiscal train wreck.