"TAX IMMUNITY" FOR DEFAULTED STUDENT LOANS
July 16, 1997
Imagine a bill requiring taxpayers to pick up the tab when borrowers default from paying back their auto loans. According to economists, the dynamics of this absurd scenario is exactly what happened two weeks ago when the Senate quietly slipped into its version of the budget bill a proposal to grant "tax immunity" to students who default on their student loans under the Income Contingent Repayment (ICR) program:
- Backers of the proposal want to subsidize President Clinton's so-called "direct lending" program.
- Under the program, borrowers who show little change in adjusted gross income are forgiven the required payback of loans still due after the maximum 25-year repayment period.
- The Congressional Research Service (CRS) estimates the existing ICR program cost 25 percent more than other student loan programs.
- Economists estimate that the Senate provisions would cost the ICR program -- and thus the taxpayer -- an additional $26 million per year.
Source: Grover Norquist (Americans for Tax Reform), "Tax Immunity is a Sham," Washington Times, July 16, 1997.
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