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A new federal program starting this fall promises relief and hope for millions of students and recent graduates burdened with big federal educational debts. Starting July 1, those with federal student loans can ask the government to limit their monthly payments on their federal student loans to less than 15 percent of their income. Many of those who qualify for the new Income-Based Repayment (IBR) program will pay much less than that.</p>
<p>Those who earn less than a base budget allowance of one and a half times the poverty level for their household (which was $10,400 a year in 2008 for a single person) won't have to pay a penny on their federal student loans. Everybody else who qualifies for IBR will have to pay 15 percent of the difference between their income and the base budget allowance.</p>
<p>Best of all, those earning a low income because they are in public-service jobs can have their remaining federal student debts forgiven after 10 years of income-based payments. Those who maintain low incomes and stay current on their income-based payments for 25 years can also have their remaining debts forgiven, no matter what job they have.
<p>This will skew the economy towards even more social workers and government bureaucrats. While productive member of the private sector have to pay full boat and pay taxes too.</p>
<p>It is not the right answer. We need to demand that colleges cut out unnecessary overhead and get control over admin costs. And I dont see "public sector" jobs being underpaid. Why is it in Miami the other day, thousands lined up for jobs as firemen.</p>
<p>Oh, what a huge can of worms this would open.</p>
<p>While I feel bad for those who cannot afford their loan payments - and I have no problem with lower payments, extended repayment, or other ideas that make repayment more manageable - I cannot support any reduction/forgiveness of debt that is taxpayer supported (without a corresponding sacrifice on the part of the borrower, such as some type of service requirement that benefits society accordingly). If you have never been behind the financial aid desk at a public university, you cannot begin to understand the ramifications of dong this. It would only further encourage people who game the system to do so. A student can borrow more than the cost of tuition & live on the refund checks. An undergrad can borrow up to 310000 dependent/57500 independent. Grads can have a lifetime limit of 138500. Med and health professions students can borrow up to 224000 (and if they never get through the program ...). Do you really want to just say, "No problem?" to such debt? It will only encourage irresponsible borrowing.</p>
<p>On the face, it seems great. But just pay a little for a bunch of years & the interest rate doesn't matter anymore - the debt is gone. Not good.</p>
<p>Okay, but doesn't this only apply to federal loans -- not private ?</p>
<p>And how does this help the middle-class/upper middle class parents whose EFC is 30 % of their income - for one child only ?? I guess we're supposed to dump all the debt on the student for 25 years of repayments ??</p>
<p>I think this only applies to stafford and perkins loans.</p>
<p>I don't think citibank and salliemae will be as lenient/forgiving....</p>
<p>I know rates on stafford loans are being edged down, but Plus loans are an obscene 8+%. I think the interest rate should be lower. If you can buy a house at 5%, why does a loan to pay for college cost so much more???</p>
<p>A few years ago there was a massive push to have people combine and refinance their stafford loans at 2-3%. I think that should be more like it</p>
<p>And remember, this would not apply to PLUS loans! Since the student can only borrow a limited amount a year, this doesn't relieve the burden on the parents with the EFC that is 30% of their income who will be getting the Parent loans. Of course, the govt. does continue to raise the amount our students can borrow in their name, but unless the parents are going to help re-pay those loans, we still must be cautious with how much student debt we allow our kids to assume.</p>
<p>Actually what they are planning has precedents in Canada. The Canadians took this approach because they could forecast a looming cultural and financial disaster. </p>
<p>The limitation of these reforms to Stafford, Perkins is largely because these are not as easily skewed away from reform as those handled by the big corporate lenders. And what many more schools are doing is moving to federal directs, which obviously could also be covered under these reforms. </p>
<p>Concerning why the sub privates are not covered that is largely due to the lobby presence of such as Sallie Mae and NNC. There reform is badly needed because these companies are massively over leveraged and they have via their excessive fees come close to exceeding the ability of their clients/victims to pay. So we're not talking about reasonable lenders here, these companies make the worst of the mortgage scams look like a child's game. </p>
<p>Concerning the financial costs for debt mediation or forgiveness programs, these will come due either by systemic reform or systemic collapse. </p>
<p>Plus the amount of money already being spent to prop up corporate lenders is massive and if those resources were redirected into proper student support or even loan abatement programs much could be done-and will have to be done before the whole system collapses.
OMB payments 2007-6.3 billion
SAP payments 2007-7.7 billion
Guarantee Agencies 2007-877 Million
Estimated over billings of the USDOE as of 2007-1.7 billion
Recent proposal for subsidies of an additional enhanced amount of .5% to be back paid for some 10 years (on subsidies which have already been paid). This was sneaked into the last years USDOE proposals by the outgoing head of USDOE Margaret Spellings. It's hard to get an handle on this one, but the percentage of back engineered subsidies would be out of an estimated 560 billion.
The amount of resources here are hardly trivial and as a result these are clearly one of the reasons that the government is moving to try to redirect this system to another direction. </p>
<p>Concerning people who'd manipulate the system...compared to the above amounts some terminal student, is a rank amateur. The other problem with this issue has been the moral ambiguity that Universities and colleges have with the issue of student debt amounts. Within our current system and the manner it is structured-enhanced student debt is a major resource for the sustainability of colleges. And at times they do abuse it, here in Colorado for example some of the worst offenders for trophy buildings and glitz are those institutions which have the closest associations with corporate lenders. Other schools who are less tied to those sources, are moving to the federal direct program. </p>
<p>And there are other reasons for reform of student debt. Currently in academe there is a impetus towards an enhanced awareness of crisis and safety management. That may be partially driven by the tacit admission that there will be potential incidents when students who've been crushed by untoward debts come back to the most obvious entities that they feel responsible for that situation. We are heading into an economic situation wherein that form of appalling desperation may seem to some the only response remaining and as a result there will be a potential of increased incidents at colleges and universities.
Already with even the reasonable students are harbingers of potential troubles. Many feel that the cost of their education is as much of a damnation as a potential redemption. And these are the best students...not the unstable or desperate...</p>
<p>Sueinphilly--great question! Does anyone know why a stafford loan is 6.8% and a plus parent loan is 8.5% for education when you can get a mortgage or car loan for a much lower interest rate? Does not make any sense!!!</p>
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Does anyone know why a stafford loan is 6.8% and a plus parent loan is 8.5% for education when you can get a mortgage or car loan for a much lower interest rate? Does not make any sense!!!
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<p>Maybe because, if you default on a mortgage or car loan, the lender gets your house or your car. But they probably don't want your kid. ;)</p>
<p>Because the lobby pressure in Congress and the moral co-opting of the USDOE policy offices made it possible. </p>
<p>To some extent mortgages and car loans are much more directly affected by market pressures and adjustments. The student loan industry exists in a special place...and has done so for more than a generation. Which affects even policy for government sponsored loans. </p>
<p>Do some research into the amounts spent to lobby on this one issue, it's either really entertaining or quite disturbing...</p>
<p>"Maybe because, if you default on a mortgage or car loan, the lender gets your house or your car. But they probably don't want your kid" </p>
<p>Ms. Rubenstone, funny reply...but methinks if they could they would seize children as indentured servants. They can already seize income, assets, social security...and harass someone (or their family) beyond the grave....so it's very probable that somewhere in a paneled office someone is reminiscing about the good old days of debt imprisonment...</p>
<p>This is a REALLY bad idea....with over $70 billion dollars in outstanding Stafford and Perkins loans, what is Congress thinking??? Looking at it from a student, I would love for my $40k in loans to be forgiven...as a taxpayer, it makes me wonder how much lower my net income will be. And given the track record of Congress in regards to education, student loans, grants, etc...they are sure to screw this up as well.</p>
<p>Oh, hooray! Yet another way to shaft the full-pay crowd in favor of the students who qualify for aid! We get to pay:
- inflated tuition to compensate for institutional grants to other students
- inflated tuition to compensate for budget cuts due to state overspending
- taxes to pay for federal aid to other students
- and now still more taxes to pay for student loan forgiveness</p>
<p>Where do we live again?</p>
<p>Seems to me that the more we reward the unproductive, the more unproductive we will become.</p>
<p>What congress was thinking is related to an attempt to use the 70 billion or so they control via the Stafford and other programs as an element to staving off systemic collapse. Congress already has had a debacle with the mortgage collapse and so are very concerned (although not making direct statements to that effect) about the looming potential disaster with the student loan bubble. </p>
<p>Overall student debt is now at some 566 billion, which is as unsustainable as the mortgage bubble and if it bursts will be much, much worse. Because of the massive over leveraging of the corporate educational lenders and the simple fact that there are no real concrete assets involved...Should it pass that large numbers of people can no longer pay these inflated debts there may be no point of recovery. And if the edudebt lenders hold to the same 600-1 ratio of debt to assets as some of their compatriots in the mainstream banking industry...that point of no return may already be here. </p>
<p>They know these problems are looming overseas, to the extent that Putin at the recent World Economic Forum commented that the US system will have to do something drastic and quick to reduce its overall debt loads on its citizenry or they (the US system and people) will drag the rest of the world economy under with them. And its a very disturbing sign that someone like Putin is a voice of reason in this matter...</p>
<p>"Seems to me that the more we reward the unproductive, the more unproductive we will become." </p>
<p>Geekmom we reward the non-productive on a massive scale, much of our current economic debacle can be directly attributed to those who produce wealth for themselves by producing nothing of real systemic economic value. Under those terms it could be argued the edudebt industry was and is simply a redirection and inflation of already existing resources and not a producer of genuine wealth. They exist (and have made massive amounts of money) because government fiat created a very artificial economic situation.
There are many more than one Madoff out there...</p>
<p>And at least in 1637 the Dutch got some tulips out of their debacle...we won't even get flowers to mark the resting place of our ruined economy.</p>
<p>Back to college costs, if Obama is insisting that executives of "bailed out" companies be limited to 500K per year in compensation, WHY NOT THE SAME FOR COLLEGE EXECS? AND PROFS? Who the heck does he think is paying for them???</p>