Skip to comments.The Wrong Reform on Student Debt: Obama's so-called "Reform" overlooks the real problem
Posted on 06/11/2014 7:38:04 AM PDT by SeekAndFind
There are plenty of problems with American higher education: Its price keeps rising rapidly, some qualified students still dont have access to it, and others end up at institutions for which they are ill suited. President Obama proposed a plan this week to enable existing student-loan borrowers to lower their payments, which addresses none of these concerns. Student debt is a real problem, but the cost of college is a much bigger one, and this is a temporary salve, applied unevenly.
A number of federal programs already limit annual payments on recently issued student loans to a certain percentage of the borrowers income 10 or 15 percent of adjusted gross income, with balances entirely forgiven after 20 or 25 years. Now, with no particular justification, it will be 10 percent and 20 years for all federal student loans.
Such programs are an important way to keep student debt manageable: Students do need ways to finance their education without taking on unaffordable payments. But even though student default rates are increasing, relatively few borrowers take advantage of these programs. Meanwhile, the forgiveness offered at the end of a uniform term means that the greatest financial benefits of these programs flow to borrowers with the largest loan balances, and a large amount of the benefits even go to grads with six-figure incomes. Graduates with $120,000 in law-school debt can easily end up paying the same amount each year as those who borrowed much less (say, for college). After 20 years, both borrowers will see their balances forgiven no matter how much they borrowed and how much they still owe.
Noting that participation rates in these programs are still low, the president has proposed making them retroactive and even more generous. A better idea would be to reform them and enroll borrowers in them automatically going forward.
A proposal by Representatives Thomas Petri (R., Wis.) and Jared Polis (D., Colo.) would make enrollment in income-based repayment automatic, though not mandatory. It would end the policy of loan forgiveness and cap the amount of interest that can accrue. All borrowers would then be less likely to slip into default, but would still have incentives to repay their loans faster and to consider the price of their education and how much they need to borrow for it.
The presidents proposal, meanwhile, doesnt appear to address the existence of easy ways to game the system, which the New America Foundation has identified as serious problems with the current programs. Just ending loan forgiveness, as Petri and Polis have proposed, would correct a number of these distortions.
Moreover, President Obama has talked about how he wants to use his pen and his phone to accomplish executive actions, but he doesnt have a checkbook to go with them. The expansion of existing income-based-repayment programs could cost billions of dollars over the next 10 or 20 years. How do we know this? Because the presidents 2015 budget (soundly rejected by Congress) proposed more or less these same ideas and projected how much they would cost. The costs may be worthwhile, but they cant be simply ignored.
The president sells his plan as economic stimulus, arguing that student debt is holding back consumer spending and other forms of borrowing. The existing income-based repayment, though, barely reduces borrowers balances, so theyre not necessarily any more likely to seek out or secure, say, a mortgage. And President Obamas proposed stimulus, such as it is, conveniently accrues to the better-educated and younger segments of American society, which are more likely to be supporters of his.
The open-ended nature of many federal subsidies for higher-ed borrowing is a big contributor to college costs in the first place. Bringing down prices down will mean more competition and more alternatives, along the lines of what Republican senators Mike Lee (Utah) and Marco Rubio (Fla.) have proposed. Financing opportunity in a sensible way and making education more affordable are important goals. Its too bad the president has shown little interest in them.
I predict other changes are yet to come.
The biggest change of all would be to allow student loans to be written off in bankruptcy. Current law makes it very difficult to have student loans discharged in bankruptcy.
You can just imagine what can happen. Somebody gets a degree in women’s studies or some other field in which there are no job prospects with such a college major. Students come out of college with those degrees, can’t find jobs, run up credit card and other debt, then declare bankruptcy.
I haven’t heard this discussed anywhere, but I think it’s possible that other methods are pending, to ease the burden of loan debt.
An irony is that there is evidence, that college tuition and fees have skyrocketed in recent decades, is precisely because student loan money is available to pay the freight.
Classic credit bubble.
Why is the higher education math so difficult for liberals to understand:
Four years and 80K or so to obtain a degree in one of the near worthless program (take your pick, Women’s Studies, Hispanic Studies, Black Studies, the list is nearly endless)
Job at a call center for $12 an hour
No way to pay back a student loan in 50 lifetimes.
You can change all the details you want, it always comes out the same. A degree in a subject with NO earning potential will always produce NO earning.
RE: Four years and 80K or so to obtain a degree in one of the near worthless program
80K is probably a state college or university. You don’t pay that low a price any longer in private colleges or universities.
It's pretty sad to see these kids, many of whom are from a family in which no one has ever graduated from college, scrimp by, live at home, and work hard to get a degree that will never earn them a cent. In some cases they probably don't have the academic background for anything but, “something” studies. But I am certain a few of them probably could master a difficult subject and thereby could get something from four years of college.
Unfortunately, most of the college ‘advisers’ they will talk to are from the liberal arts wing themselves, so guess what majors they steer students towards. Really pathetic.
OBaDinga identifies the symptoms as the problem
but NEVER identifies what the real,core , problem is
Therefore , there is no cure , ... and the taxpayer pays more..
and Government steals more money from the taxpayer !
Stupid emotionalism ,..never a solution to the real problem!-the OBaDinga way !
Anything to bankrupt the country and the taxpayer !
To ObaDinga - that's called : "Leveling the Field !"
3rd party payers have worked SO great for everything else.