Skip to comments.Un-PAYDE: Pay as You (Donít) Earn
Posted on 11/02/2012 7:51:33 AM PDT by eagleye85
Student loans from the federal government cannot be discharged in bankruptcy and have severe consequences upon default. For example, upon default the federal government can garnish your wages and your credit will plummet as your loan account is assigned to a collection agency. With these consequences in mind, the Obama Administration has just recently finished its rules for the Pay As You Earn (PAYE) program.
Today the U.S. Department of Education issued final regulations that will help many more federal student loan borrowers lower their monthly payments and avoid default, stated The Institute for College Access & Success (TICAS) on November 1. Final rules for the new Pay-As-You-Earn repayment plan will provide additional much-needed repayment relief to recent graduates, who are entering the job market with record student debt and facing near record unemployment rates, states the press release (pdf).
Unemployment and underemployment for recent graduates was over 50% as of this April. An analysis of government data conducted for The Associated Press lays bare the highly uneven prospects for holders of bachelors degrees, reported the Associated Press on April 23. About 1.5 million, or 53.6 percent, of bachelors degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years.
Lauren Asher, president of TICAS, notes in the press release that graduates from the Class of 2012 will start facing their first loan payments this month. The new Pay-As-You-Earn plan will provide many recent and soon-to-be college graduates with monthly payments tied to their income that are lower than currently available in IBR [Income-Based Repayment] or ICR [Income-Contingent Repayment], as well as loan forgiveness after 20 rather than 25 years of payments, it states. Under the final rules, to be eligible for Pay-As- You-Earn, borrowers must have taken out their first federal student loan after September 30, 2007 and at least one after September 30, 2011 (emphasis in original).
The Net budget impact of the regulations is $2.1 billion over the 2012 to 2021 loan cohorts, according to the Federal Register(pdf). It also provides for Loan forgiveness after 20 years of qualifying payments compared to 25 years under current regulations, increasing moral hazard for student loans.
Todays unemployment report indicates that the economy added 171,000 jobs in October The number of people employed is virtually the same as when he [Obama] took office in January 2009, reported Neil Irwin for the Washington Post. Yet a considerable number of graduates have entered the labor force since January 2009, four spring commencements ago. These regulations seem targeted toward those students who have graduated or entered school in that time period, an ironic coincidence days before the election.
The New York Times points out that unemployment in the U.S. could become structural, a perpetual part of the U.S. economy. Economists warned that long-term unemployment could be transformed in the next few years into structural unemployment, meaning that the problem is not just too few jobs and too many job seekers, but a large group of workers who no longer match employers needs or are no longer considered employable, write Annie Lowrey and Catherine Rampell on November 1.
Will recent college graduatesmany of whom have never held a job in their chosen career pathbe considered among the list of unemployable, or just those who have been unemployed long term?
“Student loans from the federal government cannot be discharged in bankruptcy...”
Therein lies the entire problem with the student loan program:
1) The loans come from the government
2) The loans can’t be discharged in bankruptcy
ALL of the risk is on the shoulders of the borrowers. When everyone involved in a transaction bears some risk if the transaction goes bad, then everyone works to ensure it will go well.
When only one party to a transaction bears any risk should it go bad, the other parties involved will not take any precautions to prevent a bad transaction.
So,the schools push government loans on students. The schools grow and get revenue. If the loan goes bad (because the student couldn’t get a job because they majored in basket weaving) the school isn’t out a dime.
If the schools lost money if the student couldn’t pay back the loan, you’d start to see schools steering new students into practical majors (like business) and away from trendy majors that have not job prospects.
Perhaps this nugget should be shared with the rest of Zero's BLS crew and their cheerleaders...
I have a friend with an enormous GSL debt load. He owes approximately $250K (at the moment). But he has 4 university degrees and specializes in a field where, ultimately, he should be able earn enough to pay it back.
Another friend is in his early 60's, with a small (~$6K) student loan taken out in the 1980's, but never paid back. The Department of Education recently obtained a judgment for the approximate $30K that had grown into. This guy is going into the underground economy, working for cash and never titling assets in his name to avoid ultimate responsibility. Assuming he does, by that time taxpayers will have taken, effectively a $40K hit for benefits that were personal to this individual.
I'll take your argument for loans going forward. But for those GSL's that exist today, the pandering of the Obama Administration is an effort to buy votes. Every dollar forgiven is a dollar absorbed into the overall national deficit, in a given year, and the cumulative national debt in totality. That is shifting the cost of a personal benefit to the taxpayer at large, and that is incorrect. All the language of "making repayment affordable" is a mask for programs which essentially redefine default down.
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