• Sharebar

I've been reading about this "Pay as you earn" plan that Obama wants to extend to all student borrowers. Basically, it caps your payments to 10% of discretionary income, and forgives the balance after 20 years (10 if you work in "public service").

The implications of this are that your loan payments stay at a very manageable level (10% discretionary, pretty sure some people spend more than that on movies every month) regardless of how much you borrow. That's right, no relationship between what you borrow and what you pay back.

This is a great deal for grad students, who have no limit on federal borrowing (and no oversight of what they spend it on - e.g. cars, weddings, vacations). The article below explains how an hypothetical MBA could have some of their principal, and all of their interest, forgiven despite making $200K + salary:

http://www.seethruedu.com/updates/pay-you-earn-bur...

The WSJ has weighed in on this a few times recently (subscription required for second article):

Too big to fail students

Woman borrows 300k to attend no name law school (and remodel house), will only pay 239/month for 10 years

This is the kind of thing that makes this blue state liberal see red.

How do my fellow tax payers feel about this? Grad students?

Comments (44)

  • rpc's picture

    I won't get into the politics of it but I genuinely have a difficult time seeing why anyone would recommend implementing this.

  • NorthSider's picture

    The potential for adverse incentives here is unbelievable.

    "For all the tribulations in our lives, for all the troubles that remain in the world, the decline of violence is an accomplishment we can savor, and an impetus to cherish the forces of civilization and enlightenment that made it possible."

  • DBCooper's picture

    Wow...can't wait to see my tax bill. This will also guarantee that private school tuition will be $100k a year in a decade.

    Please don't quote Patrick Bateman.

  • TechBanking's picture

    Well...that money has to come from somewhere.

    How do private lenders fair under this new re-payment scheme? I'm assuming they would stop lending, if the payments are capped, or they'll only lend to STEM majors and sit above govt debt in the capital structure.

  • Lambie's picture

    Pffff. If this is implemented I'm taking advantage of the situation and maxing out my borrow. $239/month? Hell yeah!

  • FeelingMean's picture

    Reading the eligibility requirements:
    http://www.youtube.com/watch?v=Xwohf_5ofvc

    "Daaamn!"

    "That dude is so haole, he don't even have any breath left."

  • In reply to FeelingMean
    D M's picture

    FeelingMean:

    Reading the eligibility requirements:

    http://www.youtube.com/watch?v=Xwohf_5ofvc

    "Daaamn!"

    You ain't got no suga? Daaaayyyyummm

    "You stop being an asshole when it sucks to be you." -IlliniProgrammer
    "Your grammar made me wish I'd been aborted." -happypantsmcgee

  • In reply to TechBanking
    DCDepository's picture

    TechBanking:

    Well...that money has to come from somewhere.

    How do private lenders fair under this new re-payment scheme? I'm assuming they would stop lending, if the payments are capped, or they'll only lend to STEM majors and sit above govt debt in the capital structure.

    I'm pretty sure that going forward private lenders are basically out of the student loan game ever since the student loan "reform" from 2009 changed this up. I think Sallie Mae is basically winding down its operations.

  • In reply to NorthSider
    lasampdoria's picture

    NorthSider:

    The potential for adverse incentives here is unbelievable.

    Politicians always fail to see the long-term effects of their actions.

    "Those who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety."- Benjamin Franklin

  • warberg's picture

    they failed to mention that when your loan balance is "forgiven" by taxpayers that you have the claim the balance that was paid off at the end as income (ex. forgiven 100k, that same 100k is taxed as earned income) which could very well bump you up a tax bracket or 3.... not as good of a plan if you ask me... but hey, if you can swing it have at it! I unfortunatly, am stuck with private loans so the program doesnt include me.

  • In reply to Lambie
    dazedmonk's picture

    The $239 a month was for $45K salary though. If you're planning to be in IB then it wont be as helpful (unless you take out even more loans. The people that really make bank are people that borrow a lot and end up with a middle-high (eg. not banker high) income $100 - $200K job. You can end up paying way less than you can afford to and having other people swallow the difference.

  • In reply to warberg
    dazedmonk's picture

    The revisions that Obama is proposing plans to get rid of the tax burden part, which IMO is bit of financial accountability in the whole system

  • AMLady's picture

    Ive taken out large amounts of student loans, and this is unbelievable. Its pretty much ensuring nobody will ever be held accountable for the decisions they make.

  • RE Capital Markets's picture

    Bad policy regarding the student loan debt bubble? Shocking, truly shocking. I am so shocked right now. I am about to take a selfie on my iphone and post it on this site just so you can see how shocked I look.

    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.

    A couple of things would happen:

    1. There would be mass bankruptcies and the students who took out too much debt would be punished.
    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.
    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.
    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.
    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.
    6. To sum up the above, the 3 worst actors in the student loan bubble/cluster-fuck/shit-storm (the students, the banks and colleges) get the burden for their own actions. Tax payers will be untouched. I repeat, tax money would not be at risk. I will say again because you are most likely too dumb to get it - tax payers pay nothing if student loan debt were to dischargeable through bankruptcy.

    I don't get this round-about stupidity. Legislation this idiotic has got to be a product of bank lobbyists/financial industry bitch-slaves. With this legislation, banks still get some payback.

    Nothing ticks me off more than this topic.

    Man made money, money never made the man

  • In reply to warberg
    NYBC02's picture

    warberg:

    they failed to mention that when your loan balance is "forgiven" by taxpayers that you have the claim the balance that was paid off at the end as income (ex. forgiven 100k, that same 100k is taxed as earned income) which could very well bump you up a tax bracket or 3.... not as good of a plan if you ask me... but hey, if you can swing it have at it! I unfortunatly, am stuck with private loans so the program doesnt include me.

    From WSJ: "The budget proposal—which requires congressional approval—would let all borrowers with pre-2007 loans participate and would make tax exempt any debt forgiven through the program. (Loan forgiveness can be considered taxable income.)"

  • In reply to RE Capital Markets
    jaciems's picture

    RE Capital Markets:

    Bad policy regarding the student loan debt bubble? Shocking, truly shocking. I am so shocked right now. I am about to take a selfie on my iphone and post it on this site just so you can see how shocked I look.

    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.

    A couple of things would happen:

    1. There would be mass bankruptcies and the students who took out too much debt would be punished.
    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.
    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.
    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.
    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.
    6. To sum up the above, the 3 worst actors in the student loan bubble/cluster-fuck/shit-storm (the students, the banks and colleges) get the burden for their own actions. Tax payers will be untouched. I repeat, tax money would not be at risk. I will say again because you are most likely too dumb to get it - tax payers pay nothing if student loan debt were to dischargeable through bankruptcy.

    I don't get this round-about stupidity. Legislation this idiotic has got to be a product of bank lobbyists/financial industry bitch-slaves. With this legislation, banks still get some payback.

    Nothing ticks me off more than this topic.


    this...too bad this will never be implemented though...

    "And the last thing, how much do you charge for a career consultation and would you accept a check?"

  • In reply to RE Capital Markets
    yeahright's picture

    RE Capital Markets:

    Bad policy regarding the student loan debt bubble? Shocking, truly shocking. I am so shocked right now. I am about to take a selfie on my iphone and post it on this site just so you can see how shocked I look.

    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.

    A couple of things would happen:

    1. There would be mass bankruptcies and the students who took out too much debt would be punished.
    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.
    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.
    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.
    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.
    6. To sum up the above, the 3 worst actors in the student loan bubble/cluster-fuck/shit-storm (the students, the banks and colleges) get the burden for their own actions. Tax payers will be untouched. I repeat, tax money would not be at risk. I will say again because you are most likely too dumb to get it - tax payers pay nothing if student loan debt were to dischargeable through bankruptcy.

    I don't get this round-about stupidity. Legislation this idiotic has got to be a product of bank lobbyists/financial industry bitch-slaves. With this legislation, banks still get some payback.

    Nothing ticks me off more than this topic.

    It would also make having a degree actually worth it again rather then being the requirement for any job now since basically everyone has one or is getting one thanks to loans.

    Frank Sinatra - "Alcohol may be man's worst enemy, but the bible says love your enemy."

  • In reply to RE Capital Markets
    crackjack's picture

    RE Capital Markets:

    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.


    I would have to disagree that the best or cheapest way to achieve such goals. Mind you, I don't have a better answer, but here's what I see happening compared to what you have provided.

    A couple of things would happen:

    1. There would be mass bankruptcies and the students who took out too much debt would be punished.


    How do think this would punish a student who took out too much debt? You have 20 somethings with little to no assets, probably poor or zero credit history, and in this economy most likely un or underemployed. If anything bankruptcy would be a blessing for them, especially if they're saddled with 50, 100, even 200k in student loan debt. Sure, they're credit score would be wrecked, but at their age it would be far easier to repair bad credit than repay those loans. It would, however, ass-rape all the parents who co-signed those loans.

    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.

    While I wouldn't feel too bad for these institutions, isn't this too reminiscent of 2007? Bad loans made to people couldn't repay their loans, causing the banking system to go into emergency mode and lending dries up. No lending mean less money flowing through the economy, which leads to another recession. I doubt people would want to go through that again.

    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.

    Nah, if anything the banks will mainly get out of the student loan market all together, leaving student loans to sole domain of the federal government (seems to be heading that way right now).

    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.

    Since when does the government not have the money to fill the gap? We're churning out 85 billion a month, all Bernanke has to do is turn up the juice on his printer.

    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.

    As long as people tout higher education as the road to the middle class salvation, and companies require at minimum a bachelor's degree to do the job of a fry cook, colleges will not be going away anytime soon. And as I said before, the government will take over the lending to students, so no worries if tuition is 30k, 50k, or 100k a year, the government will lend it right back to you.

    There are only so many ways this crisis will resolve itself, and none of them are pleasant. At the end of the day, this is what I think is going to go down:

    1. The student loan issue will get so blown up that it will be a threat to forward GDP growth (I think it already is, but not big enough of a threat for Congress to do anything).
    2. The Fed and/or Federal government will step in. Personally I don't think it would be too far of a leap considering all the mortgage loans the Fed is buying/already bought up.
    3. Political groups will decry having the government "charge" people for education, and those who either have too much student debt or who are looking to take on a bunch of debt will agree with this position.
    4. "Higher education" will be rolled into people's "rights" and thus will be heavily subsidized like those in many European countries.

    I really don't want to see it go this way, since it will definitely mean a lot higher tax bite from the middle class without solving the underlining problems that made this an issue, but given the current political climate I have a feeling this is going in this direction.

  • In reply to RE Capital Markets
    DCDepository's picture

    RE Capital Markets:

    Bad policy regarding the student loan debt bubble? Shocking, truly shocking. I am so shocked right now. I am about to take a selfie on my iphone and post it on this site just so you can see how shocked I look.

    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.

    A couple of things would happen:

    1. There would be mass bankruptcies and the students who took out too much debt would be punished.
    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.
    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.
    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.
    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.
    6. To sum up the above, the 3 worst actors in the student loan bubble/cluster-fuck/shit-storm (the students, the banks and colleges) get the burden for their own actions. Tax payers will be untouched. I repeat, tax money would not be at risk. I will say again because you are most likely too dumb to get it - tax payers pay nothing if student loan debt were to dischargeable through bankruptcy.

    I don't get this round-about stupidity. Legislation this idiotic has got to be a product of bank lobbyists/financial industry bitch-slaves. With this legislation, banks still get some payback.

    Nothing ticks me off more than this topic.

    I agree with this analysis in principle, but a few key things are missing here: 1) by allowing student loan debt to be discharged in bankruptcy after the fact would probably violate the Constitution, as the Constitution does not allow for government to assist in the breaking of contracts. These loans were given under the premise that these loans could not be discharged--and this was probably agreed to by the borrower when signing loan docs; 2) going forward, the government has basically taken over the role of lender of student loans, so there really won't be much private lending going forward.

  • In reply to yeahright
    couchy's picture

    yeahright:

    RE Capital Markets:

    Bad policy regarding the student loan debt bubble? Shocking, truly shocking. I am so shocked right now. I am about to take a selfie on my iphone and post it on this site just so you can see how shocked I look.
    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.
    A couple of things would happen:
    1. There would be mass bankruptcies and the students who took out too much debt would be punished.
    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.
    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.
    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.
    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.
    6. To sum up the above, the 3 worst actors in the student loan bubble/cluster-fuck/shit-storm (the students, the banks and colleges) get the burden for their own actions. Tax payers will be untouched. I repeat, tax money would not be at risk. I will say again because you are most likely too dumb to get it - tax payers pay nothing if student loan debt were to dischargeable through bankruptcy.
    I don't get this round-about stupidity. Legislation this idiotic has got to be a product of bank lobbyists/financial industry bitch-slaves. With this legislation, banks still get some payback.
    Nothing ticks me off more than this topic.

    It would also make having a degree actually worth it again rather then being the requirement for any job now since basically everyone has one or is getting one thanks to loans.

    except you'll fuck over a generation of students --- ouch. Oh well it's for the greater good.

  • In reply to couchy
    justin88's picture

    couchy:

    except you'll fuck over a generation of students --- ouch. Oh well it's for the greater good.

    Another generation of students, you mean?

  • TDSWIM's picture

    I don't like this plan at all. I'm all for making people who get student loans pay every cent plus interest or have ruined credit. Where's the benefit for those that didn't take out loans or worked hard to pay them off quickly? I hate free lunches when someone else is eating it. Sorry I'm not sorry.

  • In reply to NorthSider
    CoachmanMet's picture

    NorthSider:

    The potential for adverse incentives here is unbelievable.

    Yeah, it's like bailing out systematically important financial institutions whenever they get into trouble. Cause that shit'd be crazy, there's no way we'd do that.

  • In reply to CoachmanMet
    CoachmanMet's picture

    CoachmanMet:

    NorthSider:

    The potential for adverse incentives here is unbelievable.

    Yeah, it's like bailing out systematically important financial institutions whenever they get into trouble. Cause that shit'd be crazy, there's no way we'd do that.

    Seriously though, this analysis applies to the:

    1) How would this be politically sane to recommend for implementation? Apparently it is.
    2) Doesn't this create shitty incentives? Yes, but that has never stopped us before.
    3) Doesn't this hurt all the prudent, intelligent people who didn't take stupid risks? Every time.
    4) Isn't there a better, more efficient policy way to help students/the economy/society? Usually, but the more efficient policy typically violates rule 1) because it's complex and scary-sounding.
    5) This probably isn't Constitutional! The Founding Fathers are a whee bit out-of-touch with 21st century economical and social issues, I wouldn't worry.

    lines of argumentation. Perhaps effort is better spent figuring out how to make money from it?

  • In reply to crackjack
    RE Capital Markets's picture

    crackjack:

    RE Capital Markets:

    I have said this literally on every student loan related thread on this website - THE BEST AND CHEAPEST WAY TO END THE STUDENT LOAN BUBBLE AND DROP THE COST OF HIGHER EDUCATION WOULD BE TO ALLOW STUDENT LOAN DEBT TO BE DISCHARGED THROUGH BANKRUPTCY. PERIOD POINT BLANK.

    I would have to disagree that the best or cheapest way to achieve such goals. Mind you, I don't have a better answer, but here's what I see happening compared to what you have provided.

    A couple of things would happen:
    1. There would be mass bankruptcies and the students who took out too much debt would be punished.

    How do think this would punish a student who took out too much debt? You have 20 somethings with little to no assets, probably poor or zero credit history, and in this economy most likely un or underemployed. If anything bankruptcy would be a blessing for them, especially if they're saddled with 50, 100, even 200k in student loan debt. Sure, they're credit score would be wrecked, but at their age it would be far easier to repair bad credit than repay those loans. It would, however, ass-rape all the parents who co-signed those loans.

    2. Banks would get a bitch-slap of cold water in the face. Sorry, Sallie Mae, did you lend to that unemployable gender studies major? Dumb move, now take a haircut on that loan, bitch.

    While I wouldn't feel too bad for these institutions, isn't this too reminiscent of 2007? Bad loans made to people couldn't repay their loans, causing the banking system to go into emergency mode and lending dries up. No lending mean less money flowing through the economy, which leads to another recession. I doubt people would want to go through that again.

    3. After the wake up call, banks wont want to lend to students because...why lend to an unemployable gender studies major who wont be able to service the debt? Common sense, but banks have not been exercising prudence lately.

    Nah, if anything the banks will mainly get out of the student loan market all together, leaving student loans to sole domain of the federal government (seems to be heading that way right now).

    4. Students wont be able to afford college because banks wont lend in the private market and the government wont have the money to fill the gap.

    Since when does the government not have the money to fill the gap? We're churning out 85 billion a month, all Bernanke has to do is turn up the juice on his printer.

    5. Colleges will be forced to drop tuition dramatically. Some might disappear forever. It serves them right, how the flying fuck do you justify $30K per year in tuition alone for a middle class family? The guys running higher education are among the dumbest I have witnessed (almost as dumb as congress, and I am being kind here), yet they are trusted to educate our future generation. And nobody cares.

    As long as people tout higher education as the road to the middle class salvation, and companies require at minimum a bachelor's degree to do the job of a fry cook, colleges will not be going away anytime soon. And as I said before, the government will take over the lending to students, so no worries if tuition is 30k, 50k, or 100k a year, the government will lend it right back to you.

    There are only so many ways this crisis will resolve itself, and none of them are pleasant. At the end of the day, this is what I think is going to go down:

    1. The student loan issue will get so blown up that it will be a threat to forward GDP growth (I think it already is, but not big enough of a threat for Congress to do anything).
    2. The Fed and/or Federal government will step in. Personally I don't think it would be too far of a leap considering all the mortgage loans the Fed is buying/already bought up.
    3. Political groups will decry having the government "charge" people for education, and those who either have too much student debt or who are looking to take on a bunch of debt will agree with this position.
    4. "Higher education" will be rolled into people's "rights" and thus will be heavily subsidized like those in many European countries.

    I really don't want to see it go this way, since it will definitely mean a lot higher tax bite from the middle class without solving the underlining problems that made this an issue, but given the current political climate I have a feeling this is going in this direction.

    Weak. If you don't have a better answer, why bother getting involved in the conversation in the first place.

    Probably the biggest impediment to student loan reform is people like you. Your attitude basically amounts to this - "Well, we are screwed one way or another, let's just wait and let the problem solve itself. Excuse me while I go beat-off to internet porn". You're basically why this country sucks.

    There is one thing that ticks me off more than the student loan crisis - apathy.

    FWIW, I have written my congressman 6 times since 2007, and have received the same staffer-generated canned response every time. I went so far as to set up a meeting with mc congressman, which he had to cancel and I met with a clueless staffer instead.

    Man made money, money never made the man

  • TNA's picture

    Gradually reduce the amount of student loans a person can take. Real simple. This will force students to make tough choices and limit the debt they can have. For the people who already racked up huge debt you need to allow bankruptcy in select circumstances and to offer other debt forgiveness like they have now, for public service.

    If you go bankrupt on your student loans you are done getting student loan funding. I'd also maybe create a new class of bankruptcy which tacks on another 5 years on your records or something. Maybe have those 5 years optional, meaning if you can pay 10-20% of your outstanding, original loan balance you can have the bankruptcy wiped off your records 5 years earlier.

    We need some type of a loan program for people to effectively invest in themselves. The issue is not all investments are equal. Limit the amount of debt and give people a way to clean the slate.Tons of people have student debt and pay it off over time. Myself included. We don't need to gut the system to appease the relatively small amount of people who fuck themselves with six figure debt to get a liberal arts degree from No Name U.

  • In reply to TNA
    RE Capital Markets's picture

    TNA:

    Gradually reduce the amount of student loans a person can take. Real simple. .

    Not so simple. How much should be limited and how do you come to that number? Who decides that number, congress?

    Letting the free market make those decisions would be a lot more efficient.

    Man made money, money never made the man

  • In reply to RE Capital Markets
    TNA's picture

    RE Capital Markets:

    TNA:

    Gradually reduce the amount of student loans a person can take. Real simple. .

    Not so simple. How much should be limited and how do you come to that number? Who decides that number, congress?

    Letting the free market make those decisions would be a lot more efficient.

    Just start reducing it by 10% or some fixed number. Congress would decide since it is the government lending.

    I love the free markets, but they aren't always the answer. No one is going to lend serious money to an 18 year old to pay for college. And while I believe removing government loans would take some air out of colleges, you'd see more internationals who are more than happy to pay full price, no loans.

    Europe is wrong with their pay for everything education related approach. No government is wrong because people need a college degree and need to invest in themselves. So the answer is somewhere in the middle.

    What we have no is government supporting loans, but with no real limits. This causes over borrowing, increased tuition costs and students who become debt slaves. You can't allow bankruptcy like in the private sector because lots of kids would simply default and claim bankruptcy upon graduation (hence why student loan is now bankruptcy proof).

    If less money was available to borrow students would either go to a cheaper college or work part time. Tuition would come down some, but not crater, people would still be able to invest in themselves and they would be prevented from taking out large sums of money. It would also allow private lending to grow, thereby bringing about a free market solution. This private lending would be fully dischargable through bankruptcy so I could see private lenders only lending to top students, STEM majors or something of that sort.

    We benefit from having an educated populace, but we need this populace to have skin in the game and to have responsibility for their investment. But good investors do not have a blank check and not all investments are equal.

  • In reply to RE Capital Markets
    crackjack's picture

    RE Capital Markets:

    Weak. If you don't have a better answer, why bother getting involved in the conversation in the first place.

    Probably the biggest impediment to student loan reform is people like you. Your attitude basically amounts to this - "Well, we are screwed one way or another, let's just wait and let the problem solve itself. Excuse me while I go beat-off to internet porn". You're basically why this country sucks.

    There is one thing that ticks me off more than the student loan crisis - apathy.

    FWIW, I have written my congressman 6 times since 2007, and have received the same staffer-generated canned response every time. I went so far as to set up a meeting with mc congressman, which he had to cancel and I met with a clueless staffer instead.

    To be honest, I may be a little apathetic when it comes to political issues now. I didn't use to be. Back in 2010, I was set to convince Washington that it was time for tax reform. I wrote a dozen different senators and congressman, President Obama and all the majority and minority leadership. The Bush tax cuts were set to expire (for the first time), and I was convinced it was the perfect time to do tax reform. I wrote a 40-page memo, complete with proposed ideas and changes to make the tax code simpler, easier to comply with, with less progressive brackets and fewer deduction/loopholes. Hell I basically pre-wrote the bill for them. I made charts and graphs about how each change would affect each tax bracket and different economic demographics, and how it would generate more revenue while lowering rates. The thing took me two months to put together. You know what happened? Letter after letter, package after package i sent, not one of those suckers wrote me back, and obviously took none of my advice to heart (in 2010 or in 2012). I think it was at that point that no matter how hard I advocated for change, most of them were not open to ideas other than the ones they had (or were given to them by the interest groups that control them).

    Call me jaded, but as much as I would like to solve this problem (and immigration reform, tax reform, and all the other issues facing us today), our political system is the biggest obstacle standing in the way of doing so. Sad as it is, but until I start seeing positive change taking place, I'll probably stay on the sidelines. It beats the anger and frustration that builds up over time from not seeing these things resolved. I don't believe there is a "better" answer to this issue (poor wording on my part). I feel there's a myriad of different solutions to fix the problem, each with their own pros and cons. You may be all for allowing student loan debt to be dischargeable in bankruptcy, but I'm not, mainly for the possible consequences of doing so. The thing is, I don't think it's a "bad" idea, just one that needs honing. However, the fact that you attack me instead of addressing my concerns in one of the reasons I don't foresee this getting resolved anytime soon. People get too invested in their idea that they either can't take valid concerns and/or criticism, or take it as a personal attack. You had an opportunity to take my concerns and address them, chancing that I might be more supportive for your solution; instead you turned turned me off from taking you seriously. How does that help anything?

  • In reply to RE Capital Markets
    crackjack's picture

    RE Capital Markets:

    Weak. If you don't have a better answer, why bother getting involved in the conversation in the first place.

    FWIW, I do have ideas that I think would help to help with the overall education cost issue. As I said, I don't think they're better (or worse) than allowing student loan debt to be dischargeable in bankruptcy, but would be beneficial no the less to the big picture:

    - Variable student loan rates depending on your chosen major. You wanna get a degree in American women studies? Be ready to pay 18% on your loan. Getting a degree in nursing (which currently has a shortage of qualified hirees), you're student loan rate is 3%.

    - Partial loan forgiveness for those in fields with shortages of qualified hirees (such as tech). The forgiveness can range from 10%-100%, depending on how well you did in school (the better you did, the more is forgiven).

    - Allow companies to deduct from their taxes payments towards employee's student loans (treat the payments like fringe benefits).

    - Allow individuals to deduct payments to collegiate institutions for another individual's tuition (currently not deductible, but excluded from gift taxation), and/or payments to reduce another individual's student loan debt.

    I would like to see the system go towards rewarding hard work (i.e. good grades), smart decisions for career goals (i.e. being able to land a job when you graduate), promoting the avoidance of student loans, and incentivizing others to help another person pay for, or pay back for their schooling.

  • FeelingMean's picture

    How should they determine which majors pay more interest?

    "That dude is so haole, he don't even have any breath left."

  • In reply to rpc
    Dnl2111's picture

    rpc:

    I won't get into the politics of it but I genuinely have a difficult time seeing why anyone would recommend implementing this.

    He's recommend it because he's an economics dumbass (clearly, I voted for the guy with useful education.). Maybe he wants to forgive the student loans as a way of offsetting taxing people to death?

  • In reply to NorthSider
    Dnl2111's picture

    NorthSider:

    The potential for adverse incentives here is unbelievable.

    Absolutely.

  • In reply to crackjack
    CRE's picture

    crackjack:

    - Variable student loan rates depending on your chosen major. You wanna get a degree in American women studies? Be ready to pay 18% on your loan. Getting a degree in nursing (which currently has a shortage of qualified hirees), you're student loan rate is 3%.

    I like this a lot, however I wonder how you would deal with an exception.

    I was a Political Science major and then picked up an Economics (BA, not BS) second major later in college. Upon graduation, I got a good job at a great company in commercial real estate. My "major" was relatively bullshit, but my career path certainly isn't.

    Under your plan, would I have just been forced to be a finance major instead? I'm not complaining, per se, just wondering.

  • In reply to crackjack
    808's picture

    crackjack:

    RE Capital Markets:

    Weak. If you don't have a better answer, why bother getting involved in the conversation in the first place.

    FWIW, I do have ideas that I think would help to help with the overall education cost issue. As I said, I don't think they're better (or worse) than allowing student loan debt to be dischargeable in bankruptcy, but would be beneficial no the less to the big picture:

    - Variable student loan rates depending on your chosen major. You wanna get a degree in American women studies? Be ready to pay 18% on your loan. Getting a degree in nursing (which currently has a shortage of qualified hirees), you're student loan rate is 3%.

    - Partial loan forgiveness for those in fields with shortages of qualified hirees (such as tech). The forgiveness can range from 10%-100%, depending on how well you did in school (the better you did, the more is forgiven).

    - Allow companies to deduct from their taxes payments towards employee's student loans (treat the payments like fringe benefits).

    - Allow individuals to deduct payments to collegiate institutions for another individual's tuition (currently not deductible, but excluded from gift taxation), and/or payments to reduce another individual's student loan debt.

    I would like to see the system go towards rewarding hard work (i.e. good grades), smart decisions for career goals (i.e. being able to land a job when you graduate), promoting the avoidance of student loans, and incentivizing others to help another person pay for, or pay back for their schooling.

    For the sake of discussion - what about subsidized equity instruments? Let the free market settle on the variable rate and the reward system you refer to above. Financial institutions can lump similar level universities and majors together like mutual funds or REITs, and students will give up a set percent of AGI to be included. Let's call it a Student Investment Trust (SIT). The price of the SITs with the H/S/W finance majors (or plumbers in trade school) will be relatively high (making the student's WACC low enough, with subsidy, to make it appealing to them). Conversely, no one will want to buy shares of a SIT composed of gender studies majors at Podunk Community College, so the true value of a degree will be more transparent, and colleges will be forced to adjust prices to reflect that. The student's payment can vary with AGI, and the student can have the option to buy his own equity back at certain intervals at its market price. The grouped structure mitigates the risks for investors (e.g. that the student will work for a startup, or dies, etc.). This type of instrument would also create a good incentive for investors to support students with training and job opportunities - an industry of consultants might even spring up, with the SITs paying them to connect the students with what they need to be successful.

  • In reply to CRE
    NorthSider's picture

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  • Dnl2111's picture
  • In reply to CRE
    FeelingMean's picture

    "That dude is so haole, he don't even have any breath left."

  • CRE's picture