http://news.yahoo.com/obamas-student-loan-debt-relief-plan-too-good-234242818.html President Obama on Wednesday is launching a new plan to lower the cost of paying back student loans for millions of borrowers – the latest installment in his bid to move a jobs agenda that bypasses a gridlocked Congress. At nearly $1 trillion, federal and private student loans now exceed US credit-card debt, posing a formidable repayment burden for many borrowers at a time of near-double digit unemployment. The plan, to be implemented by executive authority alone, allows some 1.6 million students to cap their loan payments at 10 percent of their discretionary income starting in 2012. It also forgives the balance of student loans after 20 years of payments. Current law allows students to limit loan payments to 15 percent of income, forgiving debt after 25 years of payments, though few students are aware of this option In a related move, the US Department of Education, which now administers all federal education loans, is giving borrowers the option of consolidating federal and private loans at reduced rates. “College graduates are entering one of the toughest job markets in recent memory, and we have a way to help them save money by consolidating their debt and capping their loan payments,” said Education Secretary Arne Duncan on a conference call with reporters on Tuesday. “And we can do it at no cost to the taxpayer.” Even before the official rollout of the program at a rally in Denver, House Republicans challenged how the president could move forward without congressional approval. "The president is about to announce a major change in the program that we have not yet acted on in the Congress,” said Rep. Virginia Foxx (R) of North Carolina, who chaired an oversight hearing on Tuesday. “What authority does the department have?” “I can’t answer that question,” said witness James Runcie, the Education Department’s federal student aid chief operating officer. “Whatever we’re told to do in terms of implementation and execution, we’ll optimize and do what’s in the best interest of borrowers and students.” Part of the answer appears to be a move made by the Democrat-controlled Congress in March 2010. It ended taxpayer subsidies to private banks for student loans, meaning that the Education Department alone was responsible for handing out government money for such loans. That means the $60 billion set to go to private banks for student loans during the next 10 years is now tabbed for the Education Department. Congress directed the Education Department to use that savings to expand Pell grants for low-and moderate income students to attend college. But many House Republicans who still oppose the move they say it has made the Department of Education one of the largest banks in the nation, largely unaccountable to Congress. “This is another example of the Obama administration making changes to federal education policy behind closed doors,” said GOP committee spokeswoman Alexandra Sollberger in an e-mail. “We are disappointed that the Department of Education chose not to engage committee members prior to announcing this plan to the press.” Republican critics also note that the Education Department charges 6.8 percent for loans that cost much less, “creating a pretty big slush fund for the government,” said Rep. John Kline (R) of Minnesota, who chairs the House Education and Workforce Committee, at Tuesday’s hearing. He tabbed federal borrowing for the program “at less than 1 percent” – yielding a large profit. Education Department officials dispute that view. “Right now Direct Loans reduce the deficit,” says Education Department spokeswoman Jane Glickman. “I wouldn’t call it slush.” The 10-year interest rate is dictated to the department by the White House's Office of Management and Budget (OMB), added Ms. Glickman in an e-mail. “In yesterday’s market, the 10-year rate was between 2 and 2.5. In the OMB projections, it is more like 3 for 2011. The burden of some $1 trillion in outstanding student loans – up from $500 billion just five years ago – is a hot issue in the Occupy Wall Street protests. Students struggling with loans they can’t afford to repay blame the federal government for stripping away consumer protections “Every fundamental consumer protection has been specifically removed by our Congress for student loans,” says Alan Collinge at the Zuccotti Park protest site in New York on Sunday. “It’s led to horrible outcomes for the borrowers,” he adds. “The political will to crack down doesn’t exist.” President Obama said in a statement on Tuesday: “Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference." Unlike mortgage or credit-card debt, student loans can’t be eliminated through bankruptcy proceedings. With a sputtering economy, the investment in college doesn’t always pay off for students. In an interview on NBC’s “Meet the Press" on Sunday, GOP presidential hopeful Ron Paul called federal student loans a “failed program,” because it enabled colleges and universities to inflate costs.
“This is another example of the Obama administration making changes to federal education policy behind closed doors,” said GOP committee spokeswoman Alexandra Sollberger in an e-mail. “We are disappointed that the Department of Education chose not to engage committee members prior to announcing this plan to the press.” Hilarious. The Republicans have been blocking damn near anything the President wants from Congress, from budget items to judicial appointments, and doing it far more than any congress in modern history, yet they have the nerve to make a statement like this? Obviously, they do. What is sad is that the American people simply don't pay attention, and that's something the Republican Party counts on. Depress the vote in elections, radicalise their supporters, which they have been very good at doing, and win elections by a vote of the minority of the voting public. "Voting public" being tongue in cheek, since huge numbers of Americans simply don't bother. Obama should have been doing this sort of thing long ago, but better late than never.
This might be helpful to me, since I still have plenty of student debt. I pay probably about 15% of my gross income; so 'discretionary' would be higher still. But, I think there is probably a big knowledge gap for me and everybody else. Which of my student debts count, all of them? Or do masters degrees not count? Do only subsidized loans count? Won't the accumulated interest on principal left unpaid because of the cap pretty much guarantee that the 20 year forgiveness will be employed? If they want to make this work, they'll need to do a lot to educate the public on using it. Also, I like the consolidation. I had attempted to consolidate several years ago and was essentially blocked by Texas law. I was told I could consolidate, but I could only get the weighted average of the laons' interest rates (even though market rates were much lower). And, that not all the loans I had could be consolidated anyway.
I am totally against the federal government assisting President Obama with his own student loan debt. What a freeloader.
Good move on his part to score political points in an effort to energize his base. Of course the whole student loan program is a racket and encourages reckless borrowing but that issue won't be addressed-just like obamacare didn't tackle underlying rising healthcare costs.
reckless borrowing. do you realize how much money it takes to go to undergrad now. have you seen the jump in texas public tuition since it was dergulated around 02/03. like someone said, there's no investiment like the one in yourself. talk about vicious cycle, we don't want to tax the rich, we want to leave tuition to the market, we can't find people to fill jobs here because of a lack of education, we don't want to give student loans how do you expect this country's job force to improve
Politically, good move. Financially to the beneficiaries, it's a start. Not going to have huge impact $ wise, but there's only so much a President can do without the legislature. Also won't tacke the underlying issue of college tuition keep on going up at a rate well above inflation. But at least it keeps the discussion going, perhaps one day the momentum will build up sufficiently to actually tackle the mofo.
I graduated in 2005. I'm well aware of the issues that students face as I pay my own loans off. I can say reckless because I saw it with my own eyes in my classmates who would take their difference checks and party like rockstars at the bars for a month. Is that everyone? Certainly not but I have the opinion that ease and access to cheap credit is not a good thing. See housing bubble. I escaped college with minimal debt because I worked the entire time and attended community college for a lot of the basics. That should be the norm but it's not. I've never said i'm not in favor of taxing the rich.
I've seen people get extra student loans for a down payment on a car. It can be reckless. Not saying everyone does that, but there are some students that dont even try to work while going to school, and all of their spending money comes from student loans.
Sounds good. However, what are the underlying causes of student loan debt exploding? We have gone back and forth on this in the Occupy thread. From what I have learned it seems as if the issues are states cutting back on subsidies, high demand for a college education, college tuition growth outpacing inflation by a factor of 2, and the students choosing private schools over public schools at much higher rates than in the past. On top of that you have potential students who have families that are tapped out on their credit lines and student loans are easy and cheap to access for the most part. Cheap, easy credit + dried up savings + huge demand for education = high student loan demand. Should the Fed get involved and look to subsidize public schools while putting forth some sort of mandate that caps the growth of tuition for public schools? Or maybe if this route is taken should we look to freeze tuition rates for public schools? What do yall think?
I work at a university and am a bit of an old curmudgeon. So consider the source, but... The cost of higher education, even though most of it is "non-profit" is driven largely by an expansion of University staff and bureaucracy. There aren't *that* many more professors than there used to be, but there are so many staff now, involved with "student developoment," "residential learning communities," "student leadership," counseling services, huge IT departments, etc, etc. Some of these make sense -- you could argue a lot of them make sense. But every new staff line, every new department, adds a lot of built in cost. And there is competition as universities try to "keep up with the Joneses in terms of research facilities for professors or student facilities (and support programs) to show off to parents. I kind of see it like dumb NBA owners doing anything to attract talent and fans, and ending up with unsustainable financial situations. These are my rough two cents. I could go on (and on, and on.) But higher ed. has risen WAY beyond the rate of inflation. It feels a lot like a bubble, speaking from inside the whole thing. EDIT: Here's an example from the University of California system. (I cannot vouch for this data but found the chart. I believe it is accurate.)
A lot of good discussion in this thread from all sides. Even though many will take advantage of this and game the system, hopefully it helps enough people who are trying to do the right thing and are just saddled with exorbitant amounts of debt.
So... I think we should impose a spending cap and luxury tax on universities. Lock them out for a year if necessary. Seriously, though, I agree with you that it looks like a bubble. Cost control measures are needed to stop this "keeping up with the Joneses" pattern that doesn't seems to have benefited students to a degree proportional to the level of spending. I also think it is appropriate for the U.S. government to get involved since it is in essences providing the funding for them in the form of studnet loans. Sure, one way to do it would be to take away the federal funding for college loans, but that would seem to be a "throwing out the baby with bathwater" approach. We actually do want to encourage people to go to college and graduate from them.
Who needs money for these liberal commie universities? You should go to the Rush Limbaugh school of Gold futures where you experience the utopia of conservatism and real American values. Real Americans don't need giant loans for fancy schools. We grind out our last penny to make those patriotic, yet unconstitutional taxes. If you had real talent you could just magically become an investment banker, so you could make a big salary because you went to school, worked hard and earned it... Look at me, I went to school. Look at me, I got a jerb. Look at me, I saved some money. Look at me, I went to a Tea Party rally and know everything about government, economics and global finance. Letting these freeloading, socialist, students extend out their loans is just a ploy by NObama to score more votes for his regime. On a serious note... stop making sense. The problem with our workforce today is that it needs an upgrade. We need more specialists rather than service providers that can be replaced overseas by a guy willing to work for pennies on the dollar. There are plenty of people that have graduated during the recession that haven't been able to get into the workforce because our aging workers can't afford to retire and the job growth just isn't there yet. I'm all for helping these folks out.
I was very poorly trying to argue this in the Occupy thread. I don't have much of an inside perspective on things like you do, but I just get that same bubble-esque feel that you mentioned. I didn't know how large the student loan asset backed (SLAB) market was until I started researching this stuff just a few days ago. I was told that easy and cheap student loans are not the cause of tuition inflation and that tuition inflation is only caused by cuts in state subsidies, but I just can't accept that as the sole cause. Anytime you have loose money and huge demand you get a lot of excess and ineffeciency. ______ BTW B-Bob I've continued on my physics and math path and picked up QED by Feynman. I tried picking up Feynman's 6 Not so Easy Things book, but after I started it I remembered how much math and physics I had forgotten or never really learned that proficiently in the first place. So I started going through the K - 12 level math course on khanacademy.org. The stuff Khan had to say about how education tends to emphasize just passing over achieving mastery made me realize that's why I ultimately ended up burning out once I started to reach higher level math, physics, and engineering courses at UT. I simply had far too many gaps in my fundamentals and I had been able to cruise for too long. That's my little update since I asked you for books before.
JV nailed the issue. If we're limiting the amount of amount people have to pay, and the duration people make payments, isn't the government/private lender effectively writing off a decent chunk of the loan at the end for certain students? And then ultimately, isn't the lender just subsidizing the education by incurring losses? I would think that is ultimately just going to shrink the amount of student lending available, which will in turn reduce the amount of people going to college/grad school/whatever. In some cases that may not be bad, but I don't think the intention of the law is to prevent lenders from providing student loans to people who will have lower incomes. If students can't get loans for a masters in history in a few years because lenders realize that is unprofitable, do we just end up shrinking the higher ed system? I'm not necessarily saying that's a bad thing, but why wouldn't that be the outcome?
Problem is, at least where I live, every parent thinks their kid should go and get a bachelor's. No one wants to be the only kid in his high school class that didn't get a BA, so a bunch of kids who have no business going to school waste six years of their life by partying, then don't have a good enough job to pay off their student loans because they either don't have a degree or any work skills.
This is an economic solution to a social problem. It won't do much because of that. ..but it's a nice start, and at least some sort of acknowledgement of the fact that there is a serious problem with the cost of higher education in this country.
I'm not sure this is the right way to handle this. With SLM (which is pretty scheming in their multi-dipping) and Government Guarantees associated with, it makes too much money cheap money available for education. This means creditors don't review the individual's ability to pay the funds back and review their educational plans, grades etc. This in my mind has caused educational inflation because of considerable demand for the same supply of universities (though many have opend recently like U of Phx etc.) These quasi-regulated systems like housing, student loans and healthcare seem to be areas of huge inflation of pricing and profits. In each of these industries prices inflated partially due to government backstops and guarantees. Meaning some people that wouldn't have the opportunity, now get them, but everyone pays an inflated price.
