President's New Student Loan Plan

[dimanche0829]

I sure hope this isn't too good to be true...

http://www.nytimes.com/2011/10/26/education/26debt.html?_r=1&hpw

[Eigen]

So in other words, people who decided to not go to expensive schools, work their way through schooling with lower grades/longer time to graduation, etc. to make a stable financial decision regarding their education now should have gone wherever they want, because no matter how much they racked up in debt, they only have to pay 10% of their "discretionary" income for 20 years and it all goes away.

Kinda sounds like its rewarding people who made poor financial decisions, not really helping people who took out affordable loans, and effectively penalizing those who made it through without taking out loans- whether they went to a lower tier school they could afford, or something else.

And in the end, you can't just make that money "go away". It's going to be part of all of our tax burdens to repay the amount that is "forgiven" after 20 years- and with those repayment terms, I'm guessing that will be quite a lot.

I think income based repayment is great. I think it's a good idea to help people that are struggling because they can't find a job to pay off the hundreds of thousands of dollars in loans they took out for their education. But at the same time, it *was* their choice to take out hundreds of thousands of dollars in loans for a degree that may or may not be marketable. I know people that went down that road (several hundred thousand dollars for a BA in English? 200k for a degree in social work?)... And while I feel for them, I don't necessarily think they burden of paying back the majority of loans that they took out should come back and fall on my shoulders. Of course, part of the problem (and now something that is hopefully being curtailed) is the fact that people were able to get loans for way more than they would ever, realistically, be able to pay back.

If loans were just about tuition, fees, and books, I could get behind this a lot more- but when they also include cost of living, housing, food, etc. for the time in college, I become less enthusiastic about shouldering that burden.

[dimanche0829]

I definitely share in your concerns. While I LOVE the idea that people who need help may finally have some kind of assistance, and to some extent applaud the effort of this program, I don't think it will actually solve the problem. If anything, I am left with a sense of dread that this will only make the problem worse. And then where will we go?

[eco_env]

It's not that i agree with the student loan plan, but it annoys me when people say that students who took loans instead of working full time (or something along those lines) in undergrad made poor financial decisions. When we entered college the economy was doing well, we could expect to get a higher paying job out of going to college, and particularly for going to a college with a good name and doing well- whether by getting good grades, participating in leadership activities, or doing internships that maybe don't pay so well. It made sense to take out loans as an investment, even for a liberal arts degree. It probably still makes sense in the long run; it's just that right now many are struggling with paying those loans because no one is hiring. Maybe people need to reconsider what a cheap college is- many don't seem to realize that expensive private colleges can actually be cheap if they cover all of your demonstrated need (including living expenses, as needed).

[Eigen]

I don't think it *ever* made sense to take out 50-300k for an English or Social Work or History BA as an investment, not when the earning potential has sat around 20-40k per year for either of those fields for quite some time. That's not to say it might not have been worth it personally to get those degrees, but as an investment?

There have been studies out for years that have shown the opportunity cost of college, even with high paying jobs is usually not worth it- you will make more over your lifetime getting a solid blue collar job straight out of highschool and saving for 4 years than going into debt for college- a gap you can almost never make up.

There are benefits in overall job stability and employability with a college degree- and those are still there. Even with high unemployment rates, the unemployment rate with a college degree is about half that without one.

Either way- you made a financial decision to invest a set amount in your education- just like if you had invested it in anything else. I made a different decision. But now, legislation such as this will effectively erase the vast, vast majority of any money you sunk into your education, and shift the burden to everyone else to pay off the remainder.

If this was just a stop-gap measure- letting people pay less on their loans until they could find a job- I'd be all for it. I have no problem with giving people a break in a really bad job market. But what's proposed isn't just to give people a break on their loans while the market is down- it's to give them a break for a while, and then completely let them off the hook. It's the second part I have a problem with.

I'd personally propose temporarily dropping interest rates on such loans to 0%, assuming that the proposed 10% discretionary income payments are made. That gives someone struggling to find a job a break- their loans are essentially on hold, with payments going towards the principle- but doesn't absolve them of their debt altogether.

[theregalrenegade]

I think that loans for ANY degrees, especially English, History, etc. should be totally forgiven if the student plans to stay in education. People who want to teach (ANY level) should have some practical incentive to become educators and alleviate their debt. It would encourage our educators to seek better options than trying to go at it cheaply because they know the pay for teachers is so low. I know it's not that simple, but I think the idea is worth looking into.

[Falmouth]

First of all for those who say don't go to college and get a job out of high school ? With the economy the way it has been for the last several years, where are these jobs and especially the ones that pay a living wage ? It's difficult to work at Target and be financially independent. This is why many go to college. Secondly, do more research on the law. It is only for Federal loans and only for those since '08 ( I think). Loan forgiveness after 20 years is only for those in certain public jobs. Loan consolidation will help by lowering interest rate and total payments. I don't think this is that big a deal but the President can only do so much by executive order.

[Eigen]

You can make a good living wage as a plumber, electrician, welder, machinist, carpenter, mechanic, or even working construction. And there are more job openings than there are people to fill them, in most parts of the US. I can think of half a dozen or more positions I know personally for the above jobs that will pay more than $20 per hour on average. I was financially supporting myself working as a vet-tech out of highschool- sure, I had to get up at 3 or 4 in the morning, and it was physical work in the heat, but it was a good solid job. Actually, the majority of my friends were financially self-supporting coming out of highschool.

See the recent NPR story on Newport, Iowa- the highschool there started offering welding certifications with weekend/afterschool classes, and they have waiting lists for their highschool graduates, starting at what is a very decent living wage.

From the people I know that are on "loan forgiveness" plans (currently 25 years), it must be a pretty wide range of jobs, and they certainly aren't all public. Many college teaching positions (private or public) work as well. The figures I'm currently hearing are that even with the current 15%/25 year plan, most people end up paying somewhere around 10% of the amount of the loan they originally took out. Since it's a federal loan, and so is funded with taxpayer money, that leaves the other 90% being paid for by the rest of the taxpayers.

Edited October 27, 2011 by Eigen

[long_time_lurker]

Eigen I agree 100% with you in regard to your first post (enough to upvote it). However a good point is raised in regard to there not being enough blue collar jobs available. Thanks to government policies too many jobs like manufacturing jobs have gone offshore. Also, in the trades until a place gets rid of its illegals, it's not easy finding plumbing and electrical work. Getting into the unions (electrical, pipefitters, iron workers, etc.) is an even harder nut to crack.

I do agree 100% though that this loan forgiveness just encourages lack of responsibility, and that there should be better vocational education and policies that make blue-collar work more viable in this country again particularly for American citizens. I can see doing income-based repayment but writing off the debt isn't a good idea.

[Falmouth]

I hate to disagree with you again but the average indebtedness of a current college graduate is 20K. After 20 years paying 2K a year most loans would have long since been paid off. Those with outrageous debt are another story and very few qualify for debt forgiveness. I don't personally know of anyone who has rec'd it. If you can show a link to how easy it is to qualify for please do. And by the way the unemployment rate of recent high school only graduates is off the charts and there is very little construction occurring now compared to ten years ago. Have you checked the numbers for new housing starts ? I do agree that vocational and technical schooling should be expanded and fewer students should be steered into a four year degree. Students should be actively counseled in high school and even before on employment prospects for the various degrees.

[juilletmercredi]

There have been studies out for years that have shown the opportunity cost of college, even with high paying jobs is usually not worth it- you will make more over your lifetime getting a solid blue collar job straight out of highschool and saving for 4 years than going into debt for college- a gap you can almost never make up.

This is not true. College graduates make almost a $1 million more, on average, over a working lifetime than high school graduates. And the average indebtedness is less than $30K, so there's actually a gap of about $970K in a college graduate's favor.

Loan forgiveness after 20 years is only for those in certain public jobs.

No it's not; it's for everyone. Public service loan forgivenness is after 10 years for people in certain jobs.

Do some calculators. The point is, after 20 years of paying off loans, most people won't have much - if anything - to forgive.

Let's look at three scenarios:

most people end up paying somewhere around 10% of the amount of the loan they originally took out. Since it's a federal loan, and so is funded with taxpayer money, that leaves the other 90% being paid for by the rest of the taxpayers.

This doesn't even make mathematical sense. It depends on the amount of the original loan and the income of the person. A person making $30K with $30K in loans is paying about 100% of the original loan plus about $10,000 in interest (which is a little less than half the interest). Even if they borrowed $60,000 and only make $30K, they are paying about 30% of the loan + interest - about 67% of the original loan and 20% of the interest.

If we take average indebtedness of ~$27K per adult, average family size of 4 and average household income of $68K for college grads, that's a $220/month loan payment on $54,000 of loans. $220 a month over 20 years is $52,800. The total loan + interest for $54K over 20 years at 6.8% is $98,929. Given that, the average college-educated household is paying about 53% of their loans back - about 97% of the original amount of the loan.

[Alaskah]

What about people who simply aren't good at hands-on stuff, who are thinkers, analyzers, etc.? How do they find work without a college degree making a decent living wage?

I went to a vocational-technical high school, which means that 3 hours of every day was spent in your "shop" area. We had graphic design, nursing (led only to CNA), carpentry, welding, machine shop, HVAC, auto body, and some others I am forgetting. I'd say less than 5% of my graduating class ended up with jobs in their shop areas - mainly because most of them weren't any good at what they were doing. They just expected to make good money upon graduation. And the many of the ones who were good are either unemployed or no longer working in the field because they couldn't find work.

A lot of the jobs in those trade areas that have openings expect people to have a few years of experience. The older unemployed applicants trump the younger, inexperienced ones. My ex-boyfriend had been a mechanic before they laid him off. He had maybe 2 years experience at that point. That wasn't enough to find him a job anywhere because there were far more qualified mechanics out of a job as well.

My dad had a building construction business that went under a few years ago, and he has struggled to find work since. It is all he really knows how to do (other than minimum wage jobs, like cashiering). So that career path is pretty much out of the question. The only reason he does find side jobs is because of his experience. High school grads don't have that.

Further, unless you were 24 or older and applied independent, many undergraduates do not get into a large amount of debt with Stafford loans. Even if you take them out every semester for 4 years, it might reach $20-30K (on average) as others have said. That's when we turn to private funding to cover the rest of costs, which are not being forgiven.