Student loan defaulters and the IRS

LITTLE sympathy will be found for the 1 million or so student loan deadbeats, whose income tax refunds the Education Department is asking the Internal Revenue Service to withhold to pay off some $5 billion in defaulted loans. If they are in a financial bind, the students can apply to their former campuses to work out repayment schedules and get their names off the IRS pursuit list. The action follows other warnings and steps such as private bill collecting and the reporting of defaulters to credit agencies . Other issues, however, are raised by the Education Department's resort to the IRS as a bill collector.

The first is how far Americans want to go in entrenching the federal government as debt collector of last resort. The Department of Health and Human Services has already run a profitable pilot program of withholding federal tax refunds from people behind in child-support payments -- again, little sympathy for the defaulters here. Similar IRS collection is planned for debts owed to the Veterans Administration, Small Business Administration, and the Departments of Agriculture and of Housing and Urban Deve lopment. In a world of increasingly tight computer hookups, there is still room to question how interwoven the citizen's private financial matters should be with federal agencies: The social security number should not become the master key to the individual's personal affairs.

Almost every citizen deals directly with the federal government -- as in military service or with the receipt of pension checks. The principle of IRS neutrality in government-debtor disputes is violated by such a debt-collection process.

The second issue has to do with financing student education. Under the federal loan program, students can run up a $10,000 debt in government-backed loans, not counting outside borrowings. If a youth is headed toward a law degree, such borrowing over a lifetime of earnings may mean little. But if the career track is more modest, say into teaching, and if there are two such debt burdens in a young couple's household, it is not a little matter.

The federal student loan program, which we on balance support, has permitted income-short campuses to transfer the increasing costs of education to the student's private indebtedness or to the federal government. To a degree, higher costs of off-campus housing and other student expenses are being underwritten by student debt.

Is it old-fashioned in a time of federal deficits of $170 billion a year to think that the cost of an education should be squared at graduation?

At this time of year, hundreds of thousands of college-bound youths and parents sit down at the kitchen table to review the coming school year's expenses. Today's system makes parents partners with their children in indebtedness to a degree not contemplated in the past: Even copies of the parents' income tax returns can be required for student financial aid requests. The result is to involve parents and children in a complicated financial relationship that can extend well beyond the youths' coming of a ge in other adult responsibilities.

Current federal student loans have been restructured to discourage arbitrage -- taking out free or low-interest loans for reinvestment at higher rates of return. And now defaulters will be pursued. Still, the high cost of education -- usually well above what a youth can pay for himself at the usual minimum wage, and rising faster than most prudent parental savings programs could have anticipated -- lies behind the need to borrow heavily.

Not just deadbeat student debt collection is at issue here, but also debt-based education and the further involvement of the government bureaucracy in private citizen affairs.

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