Posted on 06/12/2014 4:16:35 AM PDT by markomalley
Students who took out big loans for graduate school and those with higher incomes stand the most to gain financially under President Obama's expansion of the federal government's loan forgiveness program.
Lawyer, doctors and other highly trained professionals who utilized federal loans throughout their post-high school education could walk away with most or all of their graduate school debt forgiven by the federal government under the program, say experts.
“You can roll it all into one balance and it has a really powerful effect,” said Jason Delisle, director of the Federal Education Budget Project for the New America Foundation, a nonpartisan think tank. “The chances that you will fully repay your grad school debt are very slim.”
Obama on Monday signed an executive order that expands to as many as 5 million people a program allowing federal student loan holders to cap monthly payments at 10 percent of adjusted gross income. The program also includes debt forgiveness after 10 years for those who work for 501(c)(3) non-profits or in the public sector. For those in the private sector, they can stop paying off their loans after 20 years. The program already exists for those who took out federal student loans after Sept. 30, 2007. The expansion will offer it to all federal borrowers. At the White House on Monday, Obama outlined the plan in remarks geared toward loan holders with debt from four-year colleges, who he noted on average have nearly $30,000 in loans to repay when they graduate. Obama said he had less sympathy for those, who like himself, took out big loans to pay for law school. “That made sense because the idea was if you got a professional degree like a law degree, you would probably be able to pay it off,” Obama said. “And so I didn’t feel sorry for myself or any lawyers who took on law school debt.” But Delisle argues that Obama has essentially encouraged law school loans, and even an extra year of study for law students seeking specialty degrees, who know if they take a public-sector job, they’ll never have to pay back the fourth year or perhaps any of their law degree funding. A lawyer with $150,000 in combined undergraduate and law school loans at a 6 percent interest rate, for example, could walk away from the law school debt by going to work in the public sector with a starting salary of $70,000. Even with a 4 percent raise each year, the public defender or prosecutor who makes on-time payments and utilizes the monthly loan payment cap and 10 year forgiveness program will escape having to pay $187,000. The rest would be picked up by the government. For undergraduates, the forgiveness factor is much smaller. That’s because the average undergraduate student loan of $29,000 is more likely to be all or nearly paid off in a 10 or 20 year time span, say experts. Under the law, undergraduate borrowing is mostly limited to $30,000. There is no limit on graduate school borrowing, which is $58,000 on average. “So this is an interesting wrinkle," said Neal McCluskey, associate director of the Center for Educational Freedom at the Cato Institute, a libertarian think tank. “This executive order is probably going to make very little difference for undergraduate students,” McCluskey said. “For the average person with regular undergraduate debt, they will have paid off most of that in ten years or 20 years. Where it really becomes powerful is for graduate student debt.” The program aims to do more than just forgive debt. It will allow graduates who pay on time to make payments based on their salary. It’s a move that proponents say will help young people escape crippling monthly loan dues that prevent them from living independently, buying homes or otherwise investing in their own future. The program also aims to help attract talent to public sector jobs, which tend to pay less than work for private companies. “I think it makes a lot of sense to use it as a way to participate in high-demand fields that just don’t pay well, like public school teaching," University of Wisconsin-Madison professor Nick Hillman, an education policy expert, said. But Hillman said the program Obama expanded on Monday has so far been poorly executed, is hard for loan holders to access and has never been analyzed by the government to see if it is actually working. “It’s like apple pie,” Hillman said. “Who couldn’t like that idea? But you start to dig for that evidence that it’s working and it’s really kind of flimsy.” DeLisle points out that the federal government already offers a similar program to all borrowers, capping the monthly payments at 15 percent of salary and including the loan forgiveness timetable. The new program merely lowers the cap by another five percent. The difference is likely to be small for many borrowers, but will be much more generous for those who earn bigger salaries, he said. For someone earning $27,000 in adjustable gross income, for example, the average loan payment will drop from $128 per month to $85 per month. But for someone earning $80,000 per year, payments will plummet over $200 per month, from $619 to $412. “The people who will see the biggest reductions are people earning higher incomes,” Delisle said. “That is the effect of this change. You put that together with the loan forgiveness, and this is tailor-made for graduate students.”
We can either bail everybody out, or we can make selective bailouts based on perceived merit... the latter is just a slower path to collapse.
The plundering of the treasury continues; the feral govt is still growing; the flagrant ignoring of the Constitution is ongoing.
This is basically a windfall to the rich.
The children of rich parents who are too spoiled to get a job and only went to college to party will now get to sit in their parents basements and get those useless degrees for free.
The wives of millionaires a billionaires who stay at home will get their ivy league mrs degrees for free now simply by filing their taxes separately.
I’m not sure if this changed anything, but up until a week ago the income repayment went by the total income, including your spouse’s. So a stay at home mom who makes 0 still has to include all the money that her husband makes, she doesn’t get to say that she’s making no money. There are ways to cheat around it but who knows if they’ll be accepted by the feds in 10-20 years when it comes time to get the rest of the loan wiped out.
I paid off my student loans rather than deal with trusting the feds to “forgive” the rest of a loan balance that has been ballooning with interest for 10-20 years... They have no guidelines in place to say what you’ll need to show, etc., to get the loans forgiven. IMO this is all something that politicians are promising now, and letting future generations worry about when the time comes. When the time comes, there will be a way for the feds to weasel out of loan forgiveness for many people. That’s my hunch.
Problem is the US gov has used the Fed Reserve as a bailout mechanism to paper over screw ups on Wall Street. Bailing out Wall Street has been going on since Bush41. The rational is to help protect the economy from suffering from the shock of malfeasance by bankers. Problem is the bankers promise the US Gov they learn their lesson and will not repeat the mistake again. Problem is each mess gets larger then the last, because within the ranks of CEO are sociopaths who hold power and don’t give a damn about his fellow execs and the corporation he is suppose to watch over. Once the gov bails out Wall Street, hard to tell Dems they cannot bailout GM to protect their supporter in the UAW. This is why I am glad the Tea Party candidates are finally figuring out how to win primaries. Hopefully these Liberty reps can counter the big business GOP/Dem in Congress and Senate. While the GOP is having their insurgency, if the Dems lose the Senate in 2014 and the WH in 2016, they will face a similar insurgency from OWS. OWS and TP share a common root, disdain for corporate welfare, the establishment and Wall Street. TP and OWS just have different vision and solutions for the problem.
this article clearly explains that simply by choosing to file their taxes seperately vs jointly a stay at home mom can avoid ever having to repay a dime of her student loans.
“My point is who I would prefer to bail out. Not Wall St., no GM, not Hamas, not insurers, not Detroit - young people who are struggling to find jobs.”
Good for you; go ahead and bail them out on your own. My kids worked hard as did I to get them through college with no debt.
Now they and I will have to bailout some other lazy parents worthless kids.
Makes me ANGRY.
I don’t know if OWS and TP have a common root...
Isn’t OWS rooted in being the left’s answer to TP? It had its 15 minutes of fame well after the TP was ramping up. I recall their clumsy and floundering attempts at trying to show that OWS was, like TP, from the grass roots...
OWS is quiet because their wing of the Dem party is in the WH. When they lose the Senate and WH the OWS will emerge and grow amongst the shocked and angry liberals. OWS is not done and gone.
Justifying lousy government actions with more lousy government actions utilizing an emotional argument is not conservative logic.
I could word that otherwise, but the intelligent here will get it.
I’m not debating this with you. Take off blinders please and stop the propaganda.
The sooner we get to the bottom, the sooner we can begin to rebuild.
I really do believe it will take a collapse of the economy and government before this can be fixed.
Where’s your outrage at all the many other trillion dollar bailouts?
You seem especially upset with college students, but not filthy rich bankers and corporate execs. Why?
Of course this was back in the late 1980s. It would still be a bargain today even accounting for inflation. The options you outline using ROTC (which I used in my undergraduate days), community colleges, commuter colleges and the like are less money still.
Hillsdale College doesn't even use government loans and does a respectable job of turning out worthwhile graduates at a price quite comparable to those of many taxpayer subsidized universities. There is no reason every university in the country couldn't follow the same model or the model which some states use (North Dakota, Utah, Idaho) where the loans are dispensed by the states at rates typically lower than what Fedzilla charges.
Of course, those loans come with strings attached like you have to actually be showing progress toward graduation and be studying in something which is marketable. That's why they typically charge lower rates than Fedzilla; no $100K loans to Occupy Wall Street types majoring in puppetry.
“Government requires children to attend school and taxpayers pay for it. Why not college, too, for those who qualify?”
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Brilliant idea! Absolutely brilliant but I think it sounds like something I have heard before somewhere, sometime.
bkmk
Yes, but when you file separately, you usually lose out on a lot of tax breaks. So, what people do is to say each year that they “intend” to file separately. But each year they don’t do it because they save a significant amount of tax dollars by filing jointly. So what happens in 10-20 years when it comes time for loan forgiveness, and people have been filing jointly all the while saying they intended each year to file separately? Meanwhile, the interest is racking up on that debt. I personally know people who are playing this game.
As I said, I paid mine off instead of playing the game, though I could easily have played the game. I should never have taken out loans to begin with. I’m lucky to have graduated when I did so that I got into a niche before the bottom really dropped out. Most people will choose to play the game and will not pay off their loans.
I don’t really care if my own children to go to college. If they choose it and it’s for some legitimate course of study, then I will support them but oppose any loans. I have no idea how we’ll pull that off since in-state tuition is now about ten times what it was when I went through.
I am very thankful that my husband got through on the GI bill.
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