New federal student loans "repayment plan"

[texas_ex2000]

http://www.wsj.com/articles/educati...ded-student-loan-repayment-program-1436300209

WASHINGTON—The Obama administration is cementing a plan to allow millions of Americans to further slash their monthly student-debt bills, a move to stem defaults that risks raising taxpayer costs for the government’s burgeoning student-loan portfolio.

The Education Department will formally propose rules Wednesday to expand eligibility for a program called Pay As You Earn, which sets borrowers’ monthly payments as a small share of their income. President Barack Obama directed the agency last year to expand the program.

Under the plan, Some six million more Americans would become eligible this autumn for PAYE, Education Department officials said. PAYE caps monthly bills at 10% of a borrower’s “discretionary” income, defined as the amount above 150% of the poverty level. The program typically lowers payments by hundreds and sometimes thousands of dollars.

Ok, so what's the deal? This isn't going to stem defaults, it's kicking the can down the road so that after a decade or so of these debtors making peanut interest-only payments, we're just going to give up and let them default.

Are we now living in an age where we don't have to pay off our debts? This is literally like Greece, and not in any of the cool ways.

 

[mb227]

Are we now living in an age where we don't have to pay off our debts? This is literally like Greece, and not in any of the cool ways.

Won't be much longer until they start rolling back to the days where the BK code essentially had people telling a judge 'see ya in seven years' and then walking out of the courthouse to rack up new debt, only to honor their promise to the court to have seen them again in seven years...

 

[texas_ex2000]

You would think the Baby Boomer Social Security and Medicare storm will be bad enough in 10 years, but layering on this millennial student debt crisis...well, it doesn't look good.

I'm not saying the sky is falling and we should all be prepping for chaos. Thanks to technology, economic growth (and hence tax revenues) could keep in step with growing obligations and absorb student loan defaults. The problem is, as technology evolves the need for workers (and hence jobs) decreases. So we're going to have to tax high-earners and businesses, not just the top 5% or so, a ridiculous amount. At that point, the cost of capital and risk will be too high to justify investments in the type of ventures that can push the economy forward.

 

[Seattle Husker]

I don't have any problem with these rules for people that demonstrate a need. When my wife graduated as a teacher she was offered this or a similar program. Rather than the $300+ per month I was paying on 1/4 of the debt she carried, my wife was paying ~$75/month. This pushed her payoff date to 60yrs. I thought that was absurd when she first signed up but know that she was making $24k/year as a 1st year teacher in the 90's.

What's missing is a reapplication process to validate that the debtor still is within spitting distance of poverty. My wife ultimately changed her rate as soon as we were able to afford it but had she not done so we would have been paying that low amount for life.

 

[Dionysus]

Makes me wonder if taking on debt for college is worth it. Depends on the amount owed and future earnings I guess but if I were about to start college now and needed funding I would have to seriously consider whether to do it.

 

[Clean]

Obama is going to give the White House away when his term is over.

 

[texas_ex2000]

I don't have any problem with these rules for people that demonstrate a need. When my wife graduated as a teacher she was offered this or a similar program. Rather than the $300+ per month I was paying on 1/4 of the debt she carried, my wife was paying ~$75/month. This pushed her payoff date to 60yrs. I thought that was absurd when she first signed up but know that she was making $24k/year as a 1st year teacher in the 90's.

What's missing is a reapplication process to validate that the debtor still is within spitting distance of poverty. My wife ultimately changed her rate as soon as we were able to afford it but had she not done so we would have been paying that low amount for life.

I don't know you or your wife's situation, but if a student today took on loans to pay for college knowing that they would need repayment assistance and that they would go on a 60-year plan - that would be bad decision making.

It's the type of decision making that led to the sub-prime crisis. And who do you think bought all these Federally subsidized/guaranteed loans? As the Khaelsi says, it's like a wheel on a cart.

 

[Seattle Husker]

Makes me wonder if taking on debt for college is worth it. Depends on the amount owed and future earnings I guess but if I were about to start college now and needed funding I would have to seriously consider whether to do it.

A Bachelor's is like what a HS diploma used to be. It's an entry level requirement to get a white collar job. With costs of college these days most people have to take out some sort of loan to cover it. Now, is every person fit for college? Absolutely not thus the for-profit colleges handing out degrees to anyone qualified to take out a loan. That seems to be changing though.

 

[Seattle Husker]

I don't know you or your wife's situation, but if a student today took on loans to pay for college knowing that they would need repayment assistance and that they would go on a 60-year plan - that would be bad decision making.

It's the type of decision making that led to the sub-prime crisis. And who do you think bought all these Federally subsidized/guaranteed loans? As the Khaelsi says, it's like a wheel on a cart.

Nobody goes into debt with the intention of a 60yr payback plan. Most BA's though are looking at a salary much lower than their expectations, to start. I still remember my first offer (which I took) and debating going back to my college job on the weekends as a bellman because the latter actually paid more. The problem becomes when people remain on the 60yr plan in perpetuity. Of course, in all likelihood those individuals are destined for default anyways so it doesn't matter the plan. I can only speak to myself. Were my wife a single teacher she likely wouldn't have been able to afford to remain a teacher without a plan like that. Certain careers like education, social work and others simply don't pay enough to pay off student loan debt in any substantial way with starter salaries.

 

[texas_ex2000]

Nobody goes into debt with the intention of a 60yr payback plan.

Very true, but many find themselves on one. It's because they either 1) don't have a plan, 2) have unrealistic expectations, or 3) 1 and 2.

My story...1st generation, parents from one of the poorest countries in the world, mother a teenager when she got here, father did not have a college degree, I was a COLA student and my grades got me into a M&A job at big E&P in Houston. Since UT was a bargain (no expensive/educationally useless Gregory resort pool to upkeep) I had very little student debt. Then I went into the Navy and did 4 years. I got into Yale on the GI Bill and still have some student debt. I can't go on fancy ski trips or take 2 weeks to piddle around Europe like a lot of my classmates - they don't have debt because their families were rich. I still have to grind.

Here's the thing...I'm not working for myself, I'm grinding so that my kids can get into Yale and don't have to worry about student loans. All of this...class/wealth/education, it's generational - earned through families, and based on the values passed down from parents. It is hard. You just can't give a college degree or a house to someone and they're automatically upper "class"...especially if you have to borrow money for it. My kids will not be spoiled. They're going to learn with privelege comes responsibility to your community and country. Hopefully, they'll pass on a strong work ethic, judgement, humility, frugality, and the value of philanthropy to their children.

While I know this is generalizing a whole group of people and many are just in a bad situation, the student loan crisis isn't a fairy tail - today's YOLO students want to skip that hard part of grinding for their kids because they want to warp to the part where everything is easy and fun.

And here's what's crazy, wealth isn't actually the "thing" that gives you class or the purpose of everything...it's the grind.

John Adams On The Finer Arts:

 

[Seattle Husker]

You have an admirable story. Though I'm not a first generation American like you, I was the first member of my extended family (mother and father) to attend college, let alone graduate. Work ethic is critical which is why I paid my own way through school and came out with ~$10k in debt of U of Washington in the 90's. Unfortunately, I think the accelerating costs of college and the limits in financial aid are closing off the avenues to middle class kids following the same path. My eldest son is a Junior in HS so I've spent an exorbitant amount of time researching the financial aid process. The financial aid process is 100% geared to helping people like you or I that came from working class families. The problem is that the moment you jump into the top 10%, 5% or higher you can expect to suffer nearly the full brunt of the costs. Simply saying "my parents won't pay" is not an option when applying for financial aid. It's required to put their income/assets on the forms up through the age of 23. So, if you have parents that can't afford a $37k/yr bill as an out of state student to Oregon then you take out loans to cover the difference. There isn't a college freshman that can work enough hours to cover that cost in Eugene, OR.

Oh, and what college graduate finishes with the major they started with? College in many ways is the place you go to figure out what you want to do with the rest of your life. I went in as a Zoology major with a target of Sports Medicine. A crappy physics final pushed me to Law. I'm now a Director in IT.

I guess the point of this meandering post is to point out that expecting everyone to know where they want to get to from Day 1 and spend every day grinding to get there is great for expectations of yourself but completely unrealistic for everyone else. Everyone needs to be held accountable for their own debts but offering safety nets (like a temporary 60yr payback plan) allows for that wannabe doctor that ends up wanting to teach to become a damn fine teacher.

 

[texas_ex2000]

expecting everyone to know where they want to get to from Day 1 and spend every day grinding to get there is great for expectations of yourself but completely unrealistic for everyone else.

That's why college, or at least schools where you must take out student loans that could take a very long time to pay off, isn't for everyone. Unfortunately, that's reality. And it's not me saying this - it's math.

One of the comments in the article said: Thomas Davidson, "Some of them were irresponsible, no doubt. But the vast majority of them were just buying into the American dream, a dream which no longer existed by the time they actually got to college." Well step 1 to fix the problem is setting expectations. You can't buy a dream.

 

[Texas007]

the reason college has become so expensive is because of these loans. you now have higher demand for secondary education because money for tuition is no longer an issue. you just get loans. at the same time there has been no increase in supply of colleges. only thing that can happen is price goes up. put these loans back in private hands, and make the ability to repay tied to the earning capacity of the degree and watch tuition cost come back in line. currently we have kids taking out 200k in loans to get a ******* art history degree that they will never be able to repay. in the private sector nobody makes that loan. the consequence is you get substantial tuition decrease for that degree and this problem is solved. conversely you could get 200k in loans for an accounting degree. in short, let economics work this out. putting the government in charge of easy money has never been a good idea. ever.

 

[Musburger1]

the reason college has become so expensive is because of these loans. you now have higher demand for secondary education because money for tuition is no longer an issue. you just get loans. at the same time there has been no increase in supply of colleges. only thing that can happen is price goes up.

That's all true, and you went on to give a possible solution.

I'm of the opinion that the current model for higher education (not unlike the model for healthcare) is unsustainable. It's very possible both systems will crash within five years and be replaced with something entirely different.

With knowledge readily available at the touch of a button, the multi-million dollar physical campus structures are inefficient and too costly. The college experience is a cultural phenomena as much as anything, something people have come to regard as an essential part of life, but it is less affordable than in the past and no longer practical for more and more of the population.

 

[NJlonghorn]

the reason college has become so expensive is because of these loans. you now have higher demand for secondary education because money for tuition is no longer an issue. you just get loans. at the same time there has been no increase in supply of colleges. only thing that can happen is price goes up. put these loans back in private hands, and make the ability to repay tied to the earning capacity of the degree and watch tuition cost come back in line. currently we have kids taking out 200k in loans to get a ******* art history degree that they will never be able to repay. in the private sector nobody makes that loan. the consequence is you get substantial tuition decrease for that degree and this problem is solved. conversely you could get 200k in loans for an accounting degree. in short, let economics work this out. putting the government in charge of easy money has never been a good idea. ever.

Well said. Another way to put it is that we've decoupled the roles of decision-maker and financier. Letting an 18-year-old kid decide how to spend money borrowed from the government, with no consideration of cost vs. benefit, is silly.

One thing that must be kept in mind is non-lucrative but societally beneficial jobs. For example, market forces don't adequately incentivize basic scientific research, because the costs are enormous and the benefits are too hard to monetize. Doing the research is critical, but it doesn't pay all that well. Thus, the government has historically helped top students fund degrees in the sciences. This makes sense (to me at least), and should continue.

 

[Dionysus]

With knowledge readily available at the touch of a button, the multi-million dollar physical campus structures are inefficient and too costly.

This is so true. The world has changed dramatically in the last twenty years with respect to the availability of information. And of course access to information is not synonymous with learning or critical thinking skills, but the raw materials for an eager student are abundant. I think our notion of formal education is in the early stages of a huge shift. And I believe it will ultimately be a positive one.

The college experience is a cultural phenomena as much as anything

I was talking with a friend about this recently. I certainly benefitted from classroom time at UT but college life as a whole was super valuable to my education — being around bright people with a diversity of backgrounds and views really helped to shape the experience into something special. I don’t think there is a replacement for that.

 

[Mr. Deez]

A few things on this issue, and I always piss off the Right when I bring up the first thing.

First, the government caused the problem by effectively acting as a third-party payer with (seemingly) unlimited resources, which artificially caused the price to skyrocket. That's why I don't have a big problem with the government at least to a point taking a bath on some of these student loans. They caused the problem, and they and other government institutions have made money off of it. If they lose through defaults or public support for some debt forgiveness, I don't have a lot of sympathy for them. Furthermore, it's inevitable.

Second, someone needs to talk to students about the cost/benefits of college in general and specific degrees. If you want to get an art history degree, somebody needs to sit down with you and tell you what you're likely to earn (median salary for art history majors), likely jobs (or lack thereof), and the probable monthly payment. When a student sees that 50 percent of his income for the next 30 years is going to go toward a student loan payment, he may think twice about the art history degree.

Third, we need to stop being so reliant on college. The fact that if you only graduate from high school, you're not likely to do more than be a shift leader at McDonald's is pathetic. High schools need to start teaching marketable skills, not just college prep junk, and that should also include vocational programs.

For example, my brother does pretty well in the Dallas area doing computer networking and IT support. He was a classic screw-up as a youngster - barely graduated from high school, got a "general discharge" from the Navy, dropped out of junior college, and did pretty worthless jobs (such as working as a weenie-stuffer at Oscar Meyer) that mostly paid for him to hang around bars and play pool. When he got into his upper 20s, he became interested in computer networking and basically taught it to himself well enough to get an entry-level job with a small company that serviced small businesses. It didn't pay a lot initially, but it was enough for him to get by (especially with no student loans), and it opened the door for him to really become at what he did. Now he makes about $110K per year - not bad for a guy with a pretty shabby formal education and who was stuffing weenies and sleeping in his car in the mid '90s. There's no reason why at least the initial skills that he learned couldn't be taught to high schoolers who weren't interested in college.

 

[theiioftx]

Not sure how any of what you said, pisses off the right.

I think this whole notion that everyone "deserves" a college education is stupid. I believe by 9th grade you can determine who is "college" material and who is "trade" material. The public education system should develop education accordingly.

 

[Mr. Deez]

Not sure how any of what you said, pisses off the right.

Because many would call student loan forgiveness "welfare," because the government would effectively be giving money to people who have incurred a lot of debt. To me, it's compensatory damages. The government rigged the game (essentially conspired with universities to inflate the price, which would be illegal if done in the private sector) to the detriment of students who have been harmed. Note - I would not forgive all student loan debt. It would only be the portion that's attributable to the government's actions.

I think this whole notion that everyone "deserves" a college education is stupid. I believe by 9th grade you can determine who is "college" material and who is "trade" material. The public education system should develop education accordingly.

I agree 100 percent.

 

[theiioftx]

Well yes I missed the "forgiveness" part. I would hope the left would also be against forgiveness across the board. At the end of the day, taxpayers pay for it. I often wonder if the left does not understand that the government cannot just print money without consequences.

 

[Mr. Deez]

Well yes I missed the "forgiveness" part. I would hope the left would also be against forgiveness across the board. At the end of the day, taxpayers pay for it. I often wonder if the left does not understand that the government cannot just print money without consequences.

The Left wouldn't have much problem with loan forgiveness by itself. Hell, Bernie Sanders favors free tuition. Yes, taxpayers would pay for it, but the taxpayer has also profited from the system. They've collected interest on loans, and many of the universities that have taken in hundreds of billions of dollars that the market never would have allowed them to make were public, so their gain was also the taxpayers' gain. Furthermore, taken as a whole (meaning my entire agenda gets adopted), taxpayers would be ahead, because they wouldn't be on the hook for big defaults in the future, which the current system will produce if we do nothing.

The Left would have a problem with my full agenda even if they'd like the loan forgiveness, because I'd eliminate the entire federal student loan racket as part of any partial loan forgiveness. As a result, universities would have to charge real market rates for tuition which would be a fraction of what the they are now. That would never be enough to sustain the current system, which means a large number of university administrators and professors would have to get real jobs. (About 95 percent of those people are liberal Democrats, which is why the Left would have problem with this.) If you do the loan forgiveness but leave the racket in place, then we'll be back in the same position we're in now 10 years from now. That's not progress. That's just wasting money.

 

[chango]

I think when both sides like some of the solution and hate some of the solution - you're probably close to the right track.

 

[Horn6721]

Don't forget who really takes a bath.

 

[Mr. Deez]

Don't forget who really takes a bath.

Suppose an Army/Air Force Exchange Service (AAFES) truck rear ends you on IH-35 (as it rear ended a client of mine about 9 years ago) and totals your vehicle and puts you in the hospital and out of work. Would you still make the claim to get compensated for your losses, or would you avoid doing so, because the taxpayer would "take a bath" on the claim?

 

[Horn6721]

MrD
That analogy surprised me. You are one I respect for making sensible cogent points.
Are you saying giving gov't loans to students is a accident?
Or are you saying the students who sign to take these loans on are accidents?
Perhaps you are saying the students who sign for these loans and then decide not to pay even when they can are the accidents.

There is a difference between a large ongoing gov't program and one AFFES truck being involved in an accident.

 

[Seattle Husker]

Not sure how any of what you said, pisses off the right.

I think this whole notion that everyone "deserves" a college education is stupid. I believe by 9th grade you can determine who is "college" material and who is "trade" material. The public education system should develop education accordingly.

I agree. This is one area where other industrialized countries have a better systems than the US. We have this prevailing belief that everyone is capable of college level work (i.e. No Child Left Behind) when in actuality it's pretty easy to tell which kids are not capable. In turn, our primary school system has eliminated "tech" programs that in favor of pushing math and science to all students. We are failing these non-college destined students by not giving them an outlet to develop other marketable skills. Plumbers, electricians, mechanics are all skills that these students could be developing in HS.

There is a huge resistance to putting students in tracks though. This is holding back our educational system.

 

[Dionysus]

Oh, and what college graduate finishes with the major they started with? [...] I went in as a Zoology major with a target of Sports Medicine. A crappy physics final pushed me to Law. I'm now a Director in IT.

Similar thing here. Started at UT as a Business major, switched to Liberal Arts/Government, took the LSAT, worked for a small law firm, decided law wasn't the thing for me — finally gravitated into technology which is what I love doing. I had no clue what I really liked when I started college. It took a few years in the workforce to figure that out.

 

[Horn6721]

Husker
You are correct, many put too much emphasis on college as if that is the only path to success.
But NoChildLeftBehind is not and was not intended as a measurement for college.
NCLB only tests for reading and math and only in grades 3-8 plus once in grades 10 or 11 or 12 . I know you would agree that being able to read and do basic math is pretty necessary for almost any career.

 

[Seattle Husker]

Husker
You are correct, many put too much emphasis on college as if that is the only path to success.
But NoChildLeftBehind is not and was not intended as a measurement for college.
NCLB only tests for reading and math and only in grades 3-8 plus once in grades 10 or 11 or 12 . I know you would agree that being able to read and do basic math is pretty necessary for almost any career.

Not a measurement for college but certainly to ensure adequate preparation for college. The result of NCLB has been to force schools to focus exclusively on non-real world applications of math and science to pass the tests. The assumption is that every kid is capable of passing those tests which aren't realistic and not necessary for many careers. Advanced math as required by those test is not necessary for the careers I mentioned previously. You can build a deck with a fraction of math required to pass NCLB driven tests.

I'm not completely against testing but feel there needs to be a path (track?) for kids that have no desire or ability to pursue that "college ready" path that NCLB instituted.

 

[Horn6721]

Under NCLB there is no national test or standard for passing, each state uses it's own tests and academic standards.
If I understand NCLB correctly there is only one time in grades 10-12 that the NCLB tests are given. One test in 3 years doesn't seem like it's intention is to "ensure adequate preparation for college does it?

NCLB gets lumped into all the tests given in each state every year but the truth is the NCLB test are not given every year and certainly not every subject. Having students take the particular NCLB test only once during the last 3 years surely doesn't qualify as forcing students to test as college prep.