Government Fix-Its Encourage Indebtedness

By John Glaser

How Income-Based Repayment will make you poorer:

The federal government introduced Income-Based Repayment, or IBR, last year to provide relief to federal student loan borrowers who are struggling to manage their loan payments.

IBR provides a formula that caps monthly payments at 15% of discretionary income. Borrowers who make all their income-based payments for 25 years have the balance of their federal student loan debt forgiven at the end of that period...

The problem for borrowers is that extending you payment term will dramatically increase the amount of interest you'll pay over the life of the loan - and if you take the full 25 years to repay your debt, you'll be around 46 by the time you're debt free. That's a very, very hard way to establish a solid financial life.

This is another government provision in a long line of them (from student aid programs to university grants) which performs the opposite of its intended goal. It effectively sanctions the rising costs of higher education by placing less strain on the price to consumers, and encourages indebtedness until your twilight years.

Such circumstances certainly help explain why 80% of college graduates are going back to live with their parents, mainly to save money.

A survey of last year's college graduation class showed that 80 percent moved back home after getting their diplomas, up significantly from the 63 percent in 2006. The CollegeGrad.com survey of 2,000 young people showed that seven in 10 said they would live at home until they found a job.

..."I want to save money, so I'm not just getting by," said the 22-year-old who graduated from Washington College in 2009, and spent nearly a year working internships — paid and unpaid — before she could put her degree to use in a marketing firm.