How the student loan safety net backfired

How the student loan safety net backfired: Income-driven repayment (IDR), a program that allows federal student loan borrowers to tie loan payments to their incomes—and which President Biden dramatically expanded last year at a cost of $475 billion—was designed as a safety net for low-income individuals. So why does the evidence suggest IDR actually increases some borrowers’ risk of delinquency? Last week, FREOPP Senior Fellow Preston Cooper analyzed a new study that uses data from the U.S. Department of Education and reveals the program’s unintended consequences, particularly for borrowers qualifying for $0 monthly payments under IDR. Researchers found that these borrowers may disengage from the repayment system, leading to long-term delinquency risks. Preston recommends a simple fix: Rather than slashing payments further, policymakers should mandate a small minimum payment requirement, such as $25 per month, for all borrowers. This small change will ensure continued engagement, maintain borrower accountability, and reduce the likelihood of delinquency—all without a hefty price tag. 

CBO: Federal interest payments now exceed defense spending: Last year, the Congressional Budget Office (CBO) estimated that interest payments on U.S. federal government debt would grow to exceed spending on national defense by 2029. This month, it reported that the federal debt has gotten so large that we will cross that threshold this year. Even if spending caps Congress imposed in 2023 hold, by 2033 the deficit will be a whopping $2.6 trillion. As FREOPP President Avik Roy put it in Forbes, this is a catastrophically high number. If the federal government doesn’t get spending under control by tackling out-of-control health care costs and insolvent entitlement programs, it will be the most economically vulnerable Americans who bear the brunt of the economic and social fallout.

Hospital care billing needs this common sense reform: Americans pay more for hospital care than people anywhere else in the world. In fact, prices are so high that the average American family now pays more to hospitals than they pay in federal income and payroll taxes. As FREOPP Resident Fellow Gregg Girvan described in the Austin American-Statesman, one common way hospitals overcharge patients is by adding additional costs and fees to services provided in hospital-owned physician’s clinics. He argues that eliminating their ability to assess these fees—a reform known as “site-neutral payment”—would be a simple but effective way to lower costs significantly without reducing the quality of care. Congress should act on legislation that introduces just these kinds of reforms, either though bills like the FAIR Act or the SITE Act, which prevent hospital-owned clinics from charging facility fees, or by taking up long-overdue comprehensive health care reform. 

→ Want to learn more about how to provide market-based, universal coverage? Check out the Fair Care Act, free-market health care reform legislation designed to expand health insurance coverage while reducing costs and increasing innovation.

2023 was a terrible year for crime in D.C.: Last year, the nation’s capital bucked national trends—in the wrong direction. Nationwide, serious crimes are trending downward. In D.C., however, violent crime from homicides to auto thefts increased dramatically. FREOPP Senior Fellow Jonathan Blanks writes that the increase likely has much less to do with 2020 reforms to expand transparency than with specific failed policing and prosecutorial strategies. For instance, although MPD redoubled its focus on getting guns off the streets in 2022, murders in 2023 soared to heights not seen in more than 20 years. Meanwhile, people working closely with at-risk individuals report that prosecutors seem unwilling to prosecute gun offenders or to charge other violent offenders as felons. This creates a culture of impunity that cannot be squared with public safety. Jonathan notes that a positive path forward includes increased police patrols and expanded community outreach, and that recent MPD moves in that direction offer hope for a better 2024.

Thanks for keeping up with FREOPP, and have a great weekend! 

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