Further Observations About Income-Based Repayment (IBR)

by Daniel L. Bennett

Dr. Vedder criticized Obama's Income-Based Repayment Plan in an earlier blog, which generated a few interesting responses. Here are some additional observations about IBR:

1) It does nothing to address the true underlying problem: college costs continue to soar as more and more money pours into their coffers. Such a policy essentially lets them off the hook for cutting costs and competing to provide the best value. Instead, it provides an incentive for colleges to continue to charge higher and higher prices, as they will face no consequences for running up the tab on the taxpayers for a product with diminishing returns.

2) Students will not be interested in seeking out the best value or finishing in a timely fashion, as they will know that their repayments will be only a fraction of the total debt load that they accumulate if they enter a "preferred occupation". Do we really want to encourage more humanities or art majors to run up 6 figures in student debt at the taxpayer's expense? Not to mention that this teaches our youth horrible financial management habits.

3) It will put downward pressure on wages, as "preferred employers" will have every incentive to offer low wages and let the taxpayers cough up the rest. This will actually lower people's standard of living in the long run and make them even more dependent on Big Brother than is already the case.

4) This will be detrimental to the nation's tax base as more people move into the lowest tax brackets - many not paying any taxes at all, which is already widespread in this country.

5) This plan is bad for employment growth. As businesses are forced to bear an increasing share of the burden, you can bet that many of them will move their operations overseas where the business climate is more friendly, along with their jobs.

6) The policy is discriminatory as it favors one group over another. In this case, public services over businesses.

Overall, this plan will do more harm than good to our economy and the future prosperity that we owe the next generation to try and preserve for them. IBR is a weakening of the great American tradition that has led it to prosper for many generations, and move further towards European-style socialism that has plagued the Euro Zone with stagnant growth and high unemployment for several generations now.