See? More platitudes from a sitting member of Congress. Dude, higher education used to be free in California. Maybe he should research why that changed.
I saw Skankala out there using the script that is the new DNC-provided mantra: "The same people who are opposed to student debt relief are the same ones who voted for tax cuts for the rich." Yeh, okay, and how did the vote go on student debt relief? Nevermind.
The Biden loan plan -- by making the income driven repayment plans more affordable by limiting the ceiling to 5% of their income per year -- will simply incentivize universities to hike their tuition prices. There’s a giant loophole in Biden’s student-debt relief that could make college even more expensive. Here’s how it works https://fortune.com/2022/08/30/biden-student-loan-forgiveness-loophole-college-tuition-rise-idr/ President Biden unveiled his long-anticipated student loan forgiveness plan last week, and the debate over its impact has been heated in the days since. While the plan will entirely wipe out the debts of roughly one-third of federal student loan borrowers, critics say it could end up making college even more expensive for future generations. The program includes $10,000 in loan forgiveness for individual federal borrowers earning less than $125,000 annually—and households earning less than $250,000—as well as $20,000 in forgiveness for Pell Grant recipients, according to the White House. It would erase an estimated $300 billion in student debt, if it passes legal challenges, with some 90% of the benefits going to Americans earning less than $75,000 annually, the Biden administration estimates. But the program also includes changes to the federal income-driven repayment (IDR) system that could incentivize universities to charge higher tuition. IDR plans set students’ monthly loan payments based on their postgraduation income. Existing plans require borrowers to pay 10% to 20% of their income annually for two decades, after which the remainder of their loan is forgiven. Between 2010 and 2020, the percentage of federal student borrowers enrolled in an IDR program surged from 10% to 32%. Under the Biden administration’s student loan forgiveness plan, IDR borrowers will now pay just 5% of their income for undergraduate loans and 10% for postgraduate loans for a period of 10 or 20 years, depending on how much is owed. The plan will also increase the amount of income that isn’t subject to the IDR from 150% above the poverty line to 225% and eliminate any accrual of interest under the plans. The issue here is incentives. The IDR plan makes it so that no matter the loan amount, student borrowers make the same payments—5% or 10% of their postgraduation income annually for a period of 10 or 20 years—thereby incentivizing students to borrow as much money as possible, critics say. This, in turn, incentivizes universities to charge as much as they can because they aren’t worried about borrowers being unable to make their payments. There have been problems with the IDR system previously. In April, NPR found that 4.4 million borrowers had been repaying their student loans under the IDR system for at least 20 years, but only 32 had their loans canceled through 2021. It turned out that many debt servicers failed to keep track of how many years IDR borrowers had made payments and therefore neglected to cancel their loans when they became eligible. The borrowers, therefore, ended up paying more than they should have. But Matt Bruenig, a lawyer and the founder of left-leaning think tank People’s Policy Project, noted in a recent article that programs similar to IDR already exist in law schools: loan repayment assistance programs (LRAPs). He argues that they’ve been incentivizing those schools to raise tuition for years. LRAPs provide forgivable loans to law school graduates who plan to work in the public sector or other lower-paying legal fields while they’re in school. Law schools have figured out that this means these students don’t care about how much they borrow, and that schools have “begun to take advantage” by raising tuition, according to Bruenig. And some schools have gone a step further to profit from LRAPs. Once out of school, law school graduates can take out loans under the Public Service Loan Forgiveness (PSLF) program, which allows them to pay just 10% of their discretionary income for 10 years if they want their debts forgiven. Using LRAPs, law schools commit to paying these “modest” PSLF payments on behalf of their students and then pocket the difference. Essentially, this means that the tuition paid by new students covers the cost of previous students’ loan payments. As Dylan Matthews of the Washington Post writes, using Georgetown University as an example: “Georgetown is ultimately paying its share with money its students borrow from the federal government. The feds are paying back themselves. At no step in the process does Georgetown actually have to pay anything. The feds are picking up the entire bill.” Bruenig worries that the new IDR plan laid out by the Biden administration will incentivize all universities to use similar tactics to profit from the system, causing tuition to soar as it has for law students. The average annual cost of law school has skyrocketed more than 75% since 2005, from $29,147 to $51,170. “It’s impossible to say for sure how schools will respond to that, but schools have already shown themselves quite adept at optimizing within the financial aid constraints and not just the law schools,” Bruenig said. In a Twitter thread on Aug. 26 that prompted significant engagement among economists, Lyman Stone, an economist and chief information officer for Demographic Intelligence, a Kentucky-based demographer, called Biden’s changes to the IDR system “insane” and something that “will destroy any pretense of college affordability.” Stone suggested that students could abuse the loophole by borrowing the maximum loan amount allowed and then finding “some way to invest it illegally.” His strategy would be to use loan money to rent a “wildly overpriced” apartment and then sublet it for extra income. Despite criticism about the changes to the IDR system, the Biden administration highlighted how its new student loan policies will save average Americans money. Officials gave the example of a public school teacher who makes $44,000 annually. Under the new IDR system, that teacher’s monthly student loan payments would drop from $195 to just $56. The administration did not address the possibility of universities raising tuition in response to its changes to the student loan system.
Not a loaded question, just trying to see what's what: I see all this talk about tinkering with repayment but what is being done on the front end for breaker switches to stop students from getting in too deep? Okay so, Johnny the Global Equity major, owes 140k on student loans and is now getting ready for grad school and wants to borrow another 80k for that. What stops him from doing that? Or do we just let him get in as deep as he wants and then he gets to take advantage of whatever repayment plans are the talk of the town and DC when he graduates or does not graduate?
Every university is expected to have a team which counsels students about debt questions. It usually is part of their finance department. In reality these debt counseling teams are not good advocates for the students. They are conflicted because they are part of an organization whose primary purpose is to make more money for the university -- so typically their advice is to tell the student their debt is just fine, they should get the loan & enroll. This limitation of 5% for IDR plans simply improves the university's case for telling the student to take out more debt.
Yeh, I get what the faux system is already. I am asking if there are any changes being ordered by the Biden administration in that area or are we just doing a continuation the same old-same old as far as incurring the debt and only tinkering with the pay-back?
As far as I have read there does not appear to be any changes in the proposed Biden student loan plans in regards to changes in student counseling regarding debt or establishing any type of independent entity to help with debt concerns.
Mandate federal loans only to state universities and the problem goes away significantly. Let taxpayer money support tax payer funded schools which cost less and have accountability in their tuitions hikes v. private schools which can do whatever they want.
It is getting to be market time, so I will just say briefly, that we went through this with the whole fannie mae 2008 mortgage origination disaster when it blew up. People getting talked into 300K loans who are making squat but no lender cared because it was government backed. The normal mind thought over and over and over that there was no way in hell that people in that income category would ever be approved. Nope. Common sense and breaker switches and creditworthiness were not even a factor in lending.
Also -- student loans are the only debt that cannot be discarded via bankruptcy. Revert back to allowing student loans being discarded via bankruptcy and the entire landscape changes --- loans will no longer be provided to students who are unlikely based on their major and expected future earning capability to pay them back. It will also reduce the absurdly high debt levels being carried by students for meaningless majors. This would also force private schools -- with absurdly high tuition -- to start using their endowments for the intended purpose of supporting student's educational costs via grants rather than just having students taking out huge loans.