<p>
</p>
<p>I agree with Atana that this leaves students with FFEL consolidations out in the cold for now. But, if students consolidated under the DoE or, have not yet consolidated their FFEL loans, they can participate by rolling them into a federal direct consolidation loan. From the link above at finaid.org:</p>
<p>
</p>
<p>Government loans only work if the private sector is will to buy them. The risk on a loan where the borrower can walk away after 10 years is through the roof. Nobody will buy that debt and the market will either dry up or the interest rate demanded will have to be pushed sky high to overcome the repayment risk.</p>
<p>Even if you borrow from USDOE, where do you think they got the money from? It comes from buyers of government debt!</p>
<p>IF you set up a loan program where large numbers of borrows can walk away, you kill the program for everyone.</p>
<p>I don’t believe they are setting up a “program were a large number of borrowers can walk away”. They are setting up a program whereby they can collect SOMETHING from these underemployed folks instead of having them default entirely.</p>
<p>“I don’t believe they are setting up a “program were a large number of borrowers can walk away”. They are setting up a program whereby they can collect SOMETHING from these underemployed folks instead of having them default entirely.” </p>
<p>Well that’s exactly it. What’s not being fully revealed is that the student loan situation is a debacle in the making. SMC was recently downgraded to almost junk bond status, and they control some 40% of the 580 billion of student debt in the US. And as the economy continues to sink, more and more people will not be able to pay the notes to such companies. </p>
<p>At that point SMC, NNC and etc will be coming to the federal government for more ‘liquidity’ payments. Problem is the government has already given them billions (on a ongoing basis for more than a decade with such as the SLP subsidies) and that government doesn’t have the resources to keep giving them sugar and cake. </p>
<p>Likely what Duncan is trying to do with the equitable arrangement with the federal directs is to either provide a cushion for the impending bubble implosion of such as SMC, or to begin the move to extend that cushion into a very troubled area of the economy. </p>
<p>As far as the contention that millions will walk away from loans, that’s the same red herring initially used to privatize the student loan programs. It was a fiction 20 years ago and is even more of a fiction now. Simply because Duncan’s program will make it possible for people to pay something. Very different from the 220% fee enhancements and other tricks by the educational lenders which make it impossible to pay. </p>
<p>As far as killing the FFEL program, its going to die anyway. It’s a matter of how it dies, and if it does so with the explosion of a credit bubble how much damage it will do…</p>
<p>“I agree with Atana that this leaves students with FFEL consolidations out in the cold for now. But, if students consolidated under the DoE or, have not yet consolidated their FFEL loans, they can participate by rolling them into a federal direct consolidation loan. From the link above at finaid.org:” </p>
<p>And that’s why the sweetheart regulation which only allows consolidating once has got to be removed. The big lenders (SMC, NNC) have been attempting to block consolidations by even private entities, they will show all their fangs if there is even the remote possibility of the federal government taking over these loans. </p>
<p>Problem is whether its another pointless liquidity payment to these companies, or it is the feds buying up their inflated notes its still going to cost quite a bit. </p>
<p>Ironically for a system which never should have existed in the first place…</p>
<p>Let’s say that Spouse A has $1,000/mo payment and has a nice job. Let’s say that Spouse B also has a $1,000/mo payment but stays home to raise the kids. What is the incentive?</p>
<p>Spouse A and Spouse B never get legally married.</p>
<p>That way, Spouse B reports $0 income, and doesn’t have to make any payments towards the loan. When the loan is finally forgiven in 25 years, then they can get legally married.</p>
<p>Spouse A looses the benefit of Married Filing Joint on tax returns, but that is a small compared to the Student Loan payments.</p>
<p>[IBRinfo</a> :: What are these new programs?](<a href=“http://www.ibrinfo.org/what.vp.html]IBRinfo”>http://www.ibrinfo.org/what.vp.html)
[Direct</a> Loan Repayment Plans](<a href=“http://www.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlindex2.html]Direct”>http://www.ed.gov/offices/OSFAP/DirectLoan/RepayCalc/dlindex2.html)</p>
<p>
</p>
<p>"What about interest? In some situations, your reduced payment under IBR may not cover the interest on your loans. If so, the government will pay that interest on your Subsidized Stafford Loans for your first three years in IBR. After three years and for other loan types, the interest will be added to the total amount you owe. While your debt may grow if your affordable payments are low enough, anything you still owe after 25 years of qualifying payments will be forgiven. "</p>
<p>“If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized.” [from Income Contingent Repayment, and may not be applicable to Income Based Repayment]</p>
<p>Note: Payments you make first go to unpaid, uncapitalized, interest.</p>
<p>
</p>
<p>Because you have to pay the Income Contingent Payments for those 10/25 years in order to qualify for forgiveness.</p>
<p>
</p>
<p>“It will forgive remaining debt after 10 years of eligible employment and qualifying loan payments.”</p>
<p>"What are eligible jobs? In most cases, eligibility is based on whether you work for an eligible employer. Your job is eligible if you:</p>
<pre><code>* are employed by any nonprofit, tax-exempt 501(c)(3) organization;
<p>“The maximum repayment period is 25 years. If you haven’t fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however, have to pay taxes on the amount that is discharged.” [from Income Contingent Repayment, and may not be applicable to Income Based Repayment]</p>
<p>"Let’s say that Spouse A has $1,000/mo payment and has a nice job. Let’s say that Spouse B also has a $1,000/mo payment but stays home to raise the kids. What is the incentive?</p>
<p>Spouse A and Spouse B never get legally married.</p>
<p>That way, Spouse B reports $0 income, and doesn’t have to make any payments towards the loan. When the loan is finally forgiven in 25 years, then they can get legally married.</p>
<p>Spouse A looses the benefit of Married Filing Joint on tax returns, but that is a small compared to the Student Loan payments." </p>
<p>Even Mussolini never established educational policies which had direct effect on marriages…</p>
<p>Which Opera Dad, shows how unbelievably socially and economically destructive our current educational lending system actually is…so I’m not sure if it is really a form of abuse in the hypothetical model you proposed. What your hypothetical married couple are doing is the kind of necessary action taken by those in failing or predatory political and economic systems. Essentially the underclass is coming to the middle class…or Gods help us Dmitry Orlov is right…</p>
<p>"Your job is eligible if you:
<p>In our area we have 503 (c) home builders, and 503 (C) bakeries and 501 9c) printer/copy shops and every kind of unlikely “non profit” imaginable. At this rate every business that stops paying corp taxes by becoming 501(c) will hand their employee the beni of a walk-away provision on student loans. </p>
<p>How about giving tax breaks to the people who pay taxes, and create private sector jobs.</p>
<p>Toadstool: There is a difference between 501(c)(3) and 503(c)</p>
<p>501(c)(3) — Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations</p>
<p>The organization not only has to be “non-profit”, but it also must be in one of the above classes.</p>
<p>Hey - I’ve made on-time mortgage payments every month for 23 years. After 3 years of on-time payments, my income was cut in half. Yet I continued to make my payments on time, and do so even today. I want loan forgiveness.</p>
<p>P.S. I have served in many a volunteer capacity for 20 years.</p>
<p>“However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment.” </p>
<p>Well that’s some progress, one of the means that the corporate lenders turned the better part of a generation into educated sharecroppers was the capitalization trick. A few unemployment deferments, or even deferments while in school is often enough to turn a reasonable debt into an impossible one. Then when the payments are escalated, the fee enhancements kick in…</p>
<p>Sounds like Duncan and company were quite aware of the usurious tricks pulled by the federalized corporate lenders. Much of the USDOE proposal is to direct people away from the corporate loans, at least those who are being made aware of the history of these instruments. </p>
<p>Problem is, most don’t become aware until its too late. </p>
<p>“Hey - I’ve made on-time mortgage payments every month for 23 years. After 3 years of on-time payments, my income was cut in half. Yet I continued to make my payments on time, and do so even today. I want loan forgiveness.” </p>
<p>Kelsmom its to your credit, literally and personally, that you kept the mortgage up. </p>
<p>However the paramount distinction between even the worst of mortgages and student loans is that a mortgage contract still has meaningful rights attached to it. One can refinance for more favorable terms; that cannot be done more than once with student loans. And increasingly the big companies are blocking consolidations, or ensuring consolidations are under little better terms than the original note. </p>
<p>Second on a mortgage one can file for chapter protection, reorganize and make arrangements to pay creditors, That is disallowed under the regulations for student loans, especially the FFLP and privates.</p>
<p>Additionally mortgage lien holders are bound to FTC regulations about harassment, a condition which has not been enforced when the student loan corporations are considered. At one passing time worked in the courts system, in peripheral areas of law enforcement and I’ve witnessed student loan companies enact abuses which would place a law enforcement officer up on charges for harassment and denial of due process. If not simply jumped and beaten up by the entire neighborhood…</p>
<p>And finally except for the last few years, mortgage contracts were carefully vetted by banks with risk in mind. Student loans are signed off to populations which are never fully cognizant of the dangers, and are not made so because the schools and corporations do not fully follow federal guidelines about loan disclosure. </p>
<p>Your mortgage from 23 years back is a very different paradigm from the credit sharks which have run amuck in the student loan industry…</p>
<p>If mortgages operated under the terms of student loans, there’d be burning houses all over the country and disaffected middle class mobs storming Washington. Or at least a mafia loan shark would not be envious of government sponsored corporate educational loans.</p>
<p>Still not clear on one point. Could someone clarify?</p>
<p>If someone takes out a massive 25-year student loan to be a gym teacher in public school or a organization that promotes sport (503c3) they could walk away from the loan after 10 years. Who pays for the remaining 15 years. </p>
<p>oversimplified example:</p>
<p>Four years at a private LAC $120,000 loan at with 8% simple interest. After all, why not rack up loans at a costly private college; one can walk away from the loans!</p>
<p>repayment over 25 years @ $5,000/year</p>
<p>In 10 years, pay $50,000</p>
<p>Last 15 years - pay nothing</p>
<p>Who picks up the tab for the remaining 75,000?</p>
<p>Actually one cannot walk away from these loans, even under Duncan’s new proposal for the federal directs because such provisions as bankruptcy protections are non existent. What Duncan is trying to do is make some safety net within a context which could wreck this countries remaining economy. Duncan and his advisers know that the educational debt problem is well past the level for which people can realistically pay. Especially under the looming pressures of a depression. </p>
<p>There is some 580 billion of student debt in the United States. Of that amount about 40% is held by just one company, SMC. They have so massively over leveraged that amount that recently the bond assessment agencies have downgraded their status to literal junk.
Additionally the link between escalating educational costs and debt is very close, educational costs have exceeded every measure of inflation. It’s been a massive credit bubble in the making, and one which is close to explosion.
Plus its quite arguable that the resources directed into the 580 billion could have been better directed into the consumer economy. One of the reasons that such as GM and Chrysler have gone under is that their middle class clientele have been hit by predatory lending in mortgages, student loans, credit cards and etc. Therefore the middle class economic engine which actually drives the US economy has been run off the track. They simply no longer have the money to buy those things which drive our economy. Largely because due to loss of real economic status the middle class has had to borrow to the hilt for those things (including education) which define middle class status. </p>
<p>Additionally under our current system, much of what could go directly to student and collegiate support, are resources which are funneled through corporate lenders and then lent back to the original cause. </p>
<p>For example the massive and longstanding SLP subsidies which the government gives to corporate lenders. That’s at one low estimate at least 2 billion a year. And that doesn’t include the recent attempt to add some .5 percent enhancement on subsidies already paid, for a period of more than a decade. Another factor is the massive over billings, in one case with just one company some 270 million (and rising the initial expose on that matter was only 250 million). </p>
<p>The problem is, that these hidden costs are much more than even the amounts for those few who might walk away from loans as proposed by your hypothetical model. And under our current system, on loan defaults the lenders are covered by federal sureties. Which encourages them to artificially inflate loan amounts under dispute because they can get the surety money from the federals, and then still attach the debtor. And keep in mind that fairly little of the attached revenue ever gets back to the federal government. </p>
<p>The dilemma is that we have had a generation of a perverse lending system, and so like a chronic disease we seem to be incapable of comprehending there are other ways which education can be funded. So the real issue is not who picks up the tab for your hypothetical 70,000, but why that tab even exists in the first place? </p>
<p>And incidentally the hypothetical example of walking away from loans, is an old and hoary perception. The same concept saturated the debate when the student loan industry was privatized back in the late 70’s. Then it was the fictional doctor/lawyer who 'walked away from loans". Which then was very much a red herring and remains so. As more people were able to pay student loans prior to privatization simply because the terms were less predatory and tuition costs lower. But the core reality is that default rates have actually increased under our current system, for any number of reasons. And that can be researched even through the manipulations of the data by the lenders. But the paramount fact is that federally subsidized lenders actually benefit from defaults. </p>
<p>Now the issue of equity in student loans, and debate as to whether these should even exist has once again seriously arisen, the old bogey man is being hauled out from the closets.</p>
<p>Downgrading of SLC bonds implies that investors, who put the money on the table, are fleeing. No investors to soak up student debt> no student loans. Whatever the interest rate program or scheme, without the private investors, loans volume would be degraded.</p>
<p>Institutionalized “default” after 10 years for people who intentionally run up a debt that they would never pay back institutionalized upside down economic behavior. Really bad idea. The brake on rise of tuition - through required repayment - would be degraded. </p>
<p>Who would pick up the tab for those who walk away? - the Taxpayer? Do you really want the taxpayer pick up the tab for the unfettered tuition debt run up by folks who, despite borrowed tons of money, head into in “public service?” You do realize that would lead to a massive skew out of private sector employment into into jobs that “promote sports” etc? I’ve seen it start already: non-profit bakeries, non-profit copy shops, non-profit builders. </p>
<p>I live in an area where the largest employment sectors are government and non-profit, particularly education, exceeding 50%. A majority of the jobs in this area would justify abandonment of student loans after 10 years. Banks would be crazy to lend on student loans when a majority of local college educated jobs entitle folks to walk away 10 years.</p>
<p>If you then require all banks to loan to all students, regaurdless of major, or their ability or likelihood to repay, you have the beginnings of the mess we are in now. Carter’s 1977 Community Reinvestment Act required banks to lend 40% of all loans to folks without the income streams to repay them: sub prime. The hope was that in aggregate the foreclosure rate would be small enough to not tip the system. Wishful thinking.</p>
<p>And so we stand today; the government required banks to lend to people who could not or would not pay the loans back = house foreclosure and bank system failure > taxpayer bailout.</p>
<p>Set up a student loan system where students can walk away from loans (institutionalized foreclosure), you not only have a skew in job growth, the a loan system that will crash the financial system 15 years from now.</p>
<p>Toadstool, I agree. I have predicted this for some time … student loans are headed for the bail-out queue.</p>
<p>I see unfettered borrowing on a regular basis. I deal with students who beg for a Perkins in the summer because their annual limit has been reached - but they need to stay in school during the summer because they won’t get their unemployment if they aren’t in class. And I see students who are at their aggregate Stafford limit when they aren’t close to being done with their degree.</p>
<p>‘Downgrading of SLC bonds implies that investors, who put the money on the table, are fleeing. No investors to soak up student debt> no student loans. Whatever the interest rate program or scheme, without the private investors, loans volume would be degraded.’</p>
<p>The additional problem is that SMC was (and is) massively over leveraged. For example they recently got into the very high risk arena of selling underwriting health insurance. So the investors are fleeing for that reason also. It could be that the Obama/Duncan contingent sped up the move to direct loans as a counterbalance to a looming and very massive credit bubble in the making. </p>
<p>SMC holds about 40% of the 580 billion of student debt in this country. And of that amount much of it is grossly inflated in value. One common practice by these companies has been to artificially inflate the principal on these loans by fee enhancements-its not uncommon for those cursed with SMC educational loans to have their amount increase by 20% or more. Plus these companies do like to drive these loans into default, (not wanting to make arrangements with borrowers) because after the resale (often to subsidiaries) and other fee enhancements the total amount can increase by 50% or more. So not dissimilar to CDS’s the value of these instruments has been grossly inflated. And their clientele has been pushed to the limit of what they can pay. So it won’t be a matter of hypothetical students walking away from loans, it will be that these have been so inflated by predatory lending practices that even those who intend to pay them, won’t have enough resources to do so. </p>
<p>“Toadstool, I agree. I have predicted this for some time … student loans are headed for the bail-out queue.” </p>
<p>Actually its already happened, about 1 1/2 years ago the federals gave the corporate educational lenders billions to ensure ‘liquidity’. The problem is SMC, NNC which are the largest of these companies are used to federal money propping up their questionable practices, but they are so massively over leveraged, and have inflated their instruments so much (at incredible social costs, and the ruin of families, students and the middle class)-that there isn’t enough money to bail these corporations out. </p>
<p>The problem is the whole situation didn’t have to happen. Largely the trouble started in the late 70’s with the privatization of Sallie Mae, and it was compounded by sweetheart regulations and laws provided by people like “Buck” McKeon. </p>
<p>And its worse for the economy as a whole. Student loans, along with other predatory forms of lending such as disreputable credit cards, and shifty mortgages and etc have put the middle class on the brink. Too much of their assets have gone to these people as opposed to be directed into the consumer economy, such as the products of GM and Chrysler. </p>
<p>Its also part of a generation long problem, the middle class has not seen any meaningful increases in their buying power/status, since the 1970’s. “The onrush of technology largely explains the gradual development of a “two-tier labor market” in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households.” (CIA 2009) So what’s happening is the middle classes are compelled to borrow to maintain what earlier had been obtained by wages and etc. So the unfettered borrowing Kelsmom mentioned may have been a manifestation of that problem. For a good lecture on the matter (which does mention the problems of student loans) might look up Dr. Warrens essays and lectures about the disappearence of the American middle classes.</p>
<p>So there’s much more to the Duncan/Obama initiative to provide some reasonable alternatives to the student loan mire, they may have initiated these reforms being quite aware that the federally subsidized student loans are a massive credit bubble about to collapse, and that educational costs are an instrumental detriment to a already shaken middle class.</p>
<p>Thanks for this!!! I am repaying big student loans myself and will qualify for the IBR and the 10 year thing for working at a 501.</p>
<p>As a taxpayer who will be subsidizing your student loan forgiveness, I could use some help around my house …</p>
<p>The problem is that, the taxpayers have been funding a very expensive educational lending system for more than a generation. One which has been predominately a benefit to corporations, so by comparison writing off a few student loans is comparative pocket change. </p>
<p>In some regards one of the reasons that a direct form of jubilee is not being considered, is because these loan instruments have been so inflated and over leveraged, that these have spread throughout our economy in an almost viral manner. As such the educational lending corporations will do whatever lobbying, PR, and scheming to keep things as they have been for a generation. And unfortunately our leadership is unwilling to take on the lobby power of these companies, which ironically only exists because of government fiat. It’s something like a chronic disease produced by incest. Those involved would rather die than take the cure… </p>
<p>Problem is, our current educational lending system is an inherently detrimental or destructive condition. For many its not a matter that they do not want to pay their student loans, its a matter that the inside tricks used by this industry ensure that they cannot. It’s to the corporate lenders interest that the ‘lifelong learner’ cliche so bandied about in academe is matched by a correlative condition of almost lifelong debt. Basically what we have as a result of this system is usury unparalleled in US history . </p>
<p>And that has been incredibly destructive to our economy, as this money does not go into the productive economy but rather is funneled into socially non productive and potentially dangerous games in the CDS, hedge and etc arena. In many regards our current educational lending system is a incredibly toxic version of ‘trickle down’ economy theory. Very little of its incredible appetite for resources ever comes back into the productive economy. </p>
<p>If some reasonable terms could be compelled for these student debts, it would be instrumental in restoring our very battered consumer economy. It would free resources for the best of each generation to support the consumer economy in a more meaningful manner. GM and Chrysler for example were a situation partially produced by the effects of this system. Lower and middle echelon professionals often simply cannot buy cars and other higher ticket consumer goods because a disproportionate amount of their income is sucked up due to educational debt. Plus the unethical tricks of these companies (not crediting payments, delaying processing of payments etc) have trashed the credit ratings of many that population. It’s a very different world from what students began their careers with back in the 70’s. </p>
<p>The problem for us taxpayers is that we’ve funded an incredible corporate sugar and cake festival for the corporate lenders, but they’ve done such a good job with insider lobbying that little is known about the incredible and detrimental amount of resources fed into their maws.</p>