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Reckless spending will increase due to new student loan policy, bloggers say

Published: Monday, Jan. 7 2013 10:45 a.m. MST

A young man holds up a dollar sign during an Occupy Wall Street rally against the high cost of college tuitions on April 25, 2012, in New York. Scores of students and former students gathered to complain about the high cost of tuitions and college loans. April 25 marked the day when U.S. student debt reached $1 trillion.

DON EMMERT, AFP/Getty Images

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The new “pay as you earn” student loan option is causing many to doubt its sustainability as it will drive the government deeper into debt and create a heavier tax burden on Americans, according to an opinion article on the blog Zero Hedge.

The “Pay as you Earn Repayment Plan” took effect Dec. 21. It lowers monthly payments for students and also shortens the time they can qualify for loan forgiveness.

Monthly payments based on $25,000 student debt

Tyler Durden, the author of the Zero Hedge article, said this should be called “Yet another taxpayer funded bailout for those who bought things they can’t afford on credit.”

To him, the bill “incentivizes Americans to borrow even more federal student loans.”

He said it requires too little constraints, responsibility and too much bailout. What incentive would students have to use that money for actual school and to remain frugal?

This bailout is for “those millions of Americans, aged 18 to 80, that are drowning in student debt — debt, incidentally, which has been used to pay for drugs, motorcycles, games, tattoos, not to mention countless iProducts,” Durden said in his article.

Others said that while the plan helps some, it wouldn’t make much of a difference.

“Shaving five years off of the forgiveness period is nice, but keep in mind that artificially lowering payments and dragging them out just means you’re also paying far more in interest,” Jeremy Vohwinkle said in his article on Generation X finance.

Vohwinkle cited benefits of the program: many who cannot make those payments on the small income they make coming out of college will be benefitted when they qualify. But the real problem, Vohwinkle said, is not addressed by this government aid.

“Tuition prices are still a runaway train and increase year after year while the value of that education continues to become diluted. As long as universities are allowed to raise tuition without regard to the value a degree provides and the government is willing to let students borrow as much as they want, this problem won’t go away. In fact, it will only get worse,” Vohwinkle said.

EMAIL: alovell@deseretnews.com

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