^I do 
but we’re not on the same ideological side apparently and our experience seems to diverge.
Let’s leave it at that then.
Economics is not an ideology. How a pie is made= economics, how a pie gets divided, shared or redistributed = politics.
Thinking economics is not ideological is ideological in itself.
Any undergrad reading Stiglitz, Stigler, Tirole, Piketty, Rubistein, Hayek, Maris, Arrow-Debreu, Lordon… would immediately see major differences.
In addition to theory, any economic policy/choice has immediate, social effects, which is why it’s impossible to separate economics from politics. (As I said, it’s possible to think economics is not ideological, but that is an ideological choice in itself.)
We’re getting off topic though.
For a new grad who has 27k in student loan debt (20,000 sub and 7 unsub loans) at 6% interest and making 48,000
Under IBR would have monthly payments of ~253/month. This is not a bad plan for grads who become teachers, police officers, firefighter, working non profits where they fall under the 50k income as a starting salary. (they would also be eligible for public interest loan forgiveness after working and paying for 10 years).
Under this plan, they would have almost 5k in payments done for them. If they continued to make their payments in addition to to the 2 years payment, they could probably shave off some interest in addition to paying their loans off sooner.
Perhaps my understanding isn’t correct, but I don’t think the state of NY is making the $90 payment (in your example). From the CNN Money article:
I read this as follows: The federal repayment program would cap a student’s federal loan payments at 10% or 15% of income. Under this new program, NY state pays that 10-15% for 2 years. As the article mentions, this applies only to federal loans, which are capped at $27,000 over four years in college.
Thus, if a student is making $18,000 a year, his/her federal loan payment would be capped at $1,800 a year, or $150 a month. NY state is offering to cover the $150, rather than the difference between $150 and the full payment due. The state will do this for a maximum of two years, paying a total of $3,600.
You can disagree with @MYOS1634 without accusations of economic illiteracy. The point being made is perfectly sound economics:
- Some populations have a high marginal propensity to consume (will spend more of every $ in income). This is an economic fact. Opinions differ on the nature of these populations, but quite a few economists believe that MPC is inversely correlated with income. You can disagree, but both viewpoints are political - neither is the opinion of someone who doesn't understand economics.
- Taxes transfer money from all populations to the government, but a higher % from the wealthy. This is how progressive taxation works (in theory, at any rate).
- This program transfers money from the NY state government to those with incomes below $50,000 - who are more likely to spend the money than a stockbroker earning $5,000,000 (see point #1). Consumption increases, and this boosts economic growth, especially in low-income areas (where those with sub-$50,000 incomes are more likely to live).
I personally subscribe to this viewpoint, but recognize that it’s a matter of personal opinion. If you disagree, I won’t claim you misunderstand economics.
I guess the NY program could be paying only the IBR figure of 10%, but that’s not what the article says, it says the NY program is covering what the feds do not, and since the feds don’t ‘cover’ anything, the reporting doesn’t make sense. It is also encouraging IBR, which is nice if the grad realizes he is just deferring that 90% of the loan payment. It’s a good program if you need help, but not so great in year 20 when the deferred amount becomes due.
Also, the federal loans aren’t capped at $27k. The student could have Perkins loans, could have had Plus loans for another $4k per year if parents didn’t qualify. It is also not a straight 10% of gross income. A student who makes $20k per year would probably pay nothing under IBR since the amount up to the poverty level is excluded, and the payment is 10% of the earnings after excluding that minumum. In fact, those making under $50k won’t have very large IBR payments anyway. If that’s what NY is paying, it’s not that helpful of a program.
@NotVerySmart 1) comsumption does not drive economic growth, production does. There is nothing to consume unless someone works to produce something of value 2) Progressive taxation is a tenant of marxism, and pretty much all economic “education” taught at the UG level is really just teaching Keynesian nonsense, which is why this country is in such dire straights due to this fallacy that you can consume your way using debt to wealth and 3) transferring money (capital) from those who would invest it to create more wealth by means of further production of goods and services to someone who will spend it on a flatscreen TV or playstation 2 makes society poorer, not richer. If your argument is that Sony gets richer in this scenario, then what you are advocating is not a free market, but crony capitalism (what we have in the US) where elected bureaucrats decide who and how much to take from and who benefits as a result. Freedom is so difficult because 1) people are afraid of it as it require self reliance and 2) everyone loves the idea of something for nothing (look at the 2008 crisis as an example…everyone thought they could use “equity” in their homes to enjoy a life they did not earn, but which was just the illusion of wealth due to “free” money brought to you by the Fed via government policies.
economics is not really an ideology, it is just they way things work naturally when people simply create, produce and trade to get what they need to survive. Ideology is born of envy. What we have today is nowhere near a free society, market or capitalism. OK, off track again. Sorry.
^I think this proved my point about economics and ideology.
@twoinanddone: even if it’s little, it’s still something that can be recycled through consumption. But the article isn’t especially clear as to how much it’d be depending on various scenario (ie., Stafford only? Perkins? PLUS?) It’s clear that private cosigned loans won’t be taken into account.
freedom is my ideology
I could be wrong, but IIRC income-based repayment plans cap your payment at a monthly maximum, and then allow loan forgiveness for any remaining debt after 20 years (or 10 for those working in public service professions) of payments. It’s not deferring 90% of the sum due to year 20 and leaving borrowers in the lurch.
Under this interpretation, the Feds are “covering” everything except the borrower’s 10% payment by taking a loss on the loan (when inflation is factored in). NY, in covering what the federal government doesn’t, picks up the 10% tab for two years.
Good points about poverty levels and other federal loans beyond the habitual 27k.
While the program won’t dig borrowers out of the hole all by itself, I share @MYOS1634 's sentiment that every effort - however limited - helps.
I really have nothing to add to what Mr. College Guy said.
The feds do not ‘cover’ anything on the IBR loans, just allows for the payments to be highly reduce and the part not paid to accrue to year 20 or beyond, and then discharged (but taxable if discharged) If the loan payment was $400 per month but IBR allows it to be capped at $100, no one is paying that $300, it just keeps getting deferred. The payment amount is recalculated every year, so as the grad earns more, the payment is increased, but will it ever get back to what the original payment was scheduled to be? It is still a LOT of money being deferred along the way. As the grad earns more, he could have more exclusions from income too, more dependents, mortgage, state taxes.
If NY is only paying the IBR scheduled payment for new grads making under $50k, it is not going to be a lot. I just think of all that interest accruing.
I don’t know why the program would be limited to just the Stafford loans. Perkins, plus, etc are all federal loans, and the description is federal loans. Also, some students borrow much more that the $27000, as they go to undergrad for more than 4 years, or go to grad school and take out more Stafford loans. I think the limit is more like $52k?
@MYOS1634 - you do seem to have some background in economic theory. Given that, I’m surprised you seem to be conflating spending and investing. They are very different under every economic theory that I’m aware of.
I apologize if that’s what I conveyed. I tried to use shortcuts since that’s not our main topic :s
The only way any such system makes any sense is if the state is getting production in-kind from those graduates. Have them earn the money by working in a state agency or providing pro-bono tutoring for under-served students. Giving something for nothing will rapidly invoke the law of unintended consequences.
Simply paying debts based on a income level will drive a behavior. Not in all, but in some. Why would I work for $50K a year if the state is going to help me out as long as I stay under that level? Once the state has paid my debts, I am free to earn whatever I want without being responsible for the debt I incurred. This type of a program punished people who are frugal and rewards people who are not. It punishes those who work hard to get a better job and rewards those who do not.
The loan programs themselves were supposed to solve the problem of eligible college student being able to pay for college by effectively letting them learn now and pay later. The increased income from the college degree was supposed to allow students to pay back the money with relative ease and we get a higher-earning, better educated tax base…but then reality hit. The influx of dollars available for tuition drove up the cost of tuition for everyone and the only real result was the bloat of colleges and higher debt for all.
This is the problem with Keynesian economics. It assumes things happen in a vacuum and does not adequately account for behavior changes in people when policies are implemented. Keynes was fatally short-sighted. He was not interested in stability of growth and long term solutions. If he were a repairman, he would use duct tape to fix your pipes rather than solve the underlying problem and repair the pipes correctly. Eventually, the problem gets worse, not better.
The state is paying for a few thousand dollars over two years. That’s very different from paying the students’ debts in full.
If given the choice between working for a salary of $45,000 and getting the state to pay $3,000 a year towards their loans or working for $51,000, I’m reasonably sure most people would choose the latter. Few recent graduates will find themselves right in that $47,000-$50,000 range where earning over $50,000 could well leave them worse off than the sum of their current salary and NY State aid.
The state’s cost projections put the price tag at $40 million by the time 4 cohorts of college students are enrolled. Even assuming that estimate is wildly optimistic, and assuming a 150% cost overrun, this program’s cost will be a tad over 0.1% of the state budget for the 2016 fiscal year. Per resident, that’s less than the cost of a coffee from some NYC shops.
This is just another blatant attempt to buy votes, and cheaply at that, like insurance that pays the interest on your credit card when you are unemployed but makes no difference long term.
@NotVerySmart I am glad you advocate stealing another $2 from every taxpayer on top of ridiculously high taxes already in NY. I had to sell my house when property taxes hit $30k in 2004, they are now over $45k on same house. People like yourselves never think about the people you are taking from, only the feel good on who is receiving. You take out a loan, YOU repay it or the lender takes the hit. Period. It is not now everyone else’s problem. Are you not blind to see that programs like this are designed to bail out the banks, not the students? Same with these loan programs for homes. Look up the term moral hazard. A person advocating theft by the state under the guise of “democracy” is a thief themselves. Sugarcoat it any way you want, it is what it is.
This program is a terrible idea: it encourages people who picked programs that have a poor rate of return to stay in New York State (i.e., students with expensive degrees from mediocre schools), and, to add insult to injury, gets New York taxpayers to pay the cost.
@ happy, exactly
@kollegeguy As it happens, despite living abroad and collecting exactly $0 in government benefits as a result, my family - since we’re US citizens - is subject to a considerable level of taxation. By no means are we happily doling out others’ money. Some assumptions you seem to have made are far from correct, and I suggest you not label those who disagree with you “thieves.”
We clearly have different views on the goals and scope of public spending, and I doubt either of us will be convinced otherwise by anything that’s said here, so I’m going to leave it at that.
@HappyAlumnus Degrees with a poor rate of return can certainly be a bad idea for a student, because he/she may be on the hook for over $200,000 when the lifetime earnings boost from a degree in Women’s Studies or Social Work is far less.
NY state is slated to spend an average of $1,740 per student, per year, on this program. Over two years, that’s a tad under $3,500. It doesn’t take much of an earnings boost (and even women’s studies majors get a boost - just not enough to pay for their degree) for the state to recoup that money. This in addition to students whose earning potential later in life is far higher - like the law school graduates in this piece by the NY Times:
A law school grad who goes on to make $150,000 a year, and stays in NY because of this program, will pay for half a dozen sociology majors each year.