The Obamanation

[classicman]

President Obama unveiled his new plan to “ensure students are able to commit to higher levels of federally backed student loans.”

Essentially, the president has just offered a college student bailout as the finial initiative of his “We Can’t Wait” economic plan.

Two key provisions offered in the plan (as pointed out by Business Insider):

People who hold both government-backed private sector student loans and direct loans issued by the government will be able to consolidate those debts in one government-backed loan, thereby lowering interest rates and reducing monthly payments. The administration estimates this will affect about 5.8 million people.
The plan will accelerate income-based payment programs already passed by Congress, which allow college graduates to cap their payments at 10 percent of their income, rather than the existing 15 percent cap. Under Obama’s executive rollout, the new cap, originally scheduled to take effect in 2014, will take effect in 2013 for an estimated 1.6 million students and recent graduates.

But will these provisions really come close to dealing with the nearly $1 trillion in outstanding college debt? Some reports say “not even close.”

Daniel Indiviglio of The Atlantic put together an interesting report that calculates the impact of the president’s proposals:

Consolidation: The first would clearly be the most significant [impact], because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5 percent affect payments?

For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.

Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn’t going to save the economy.

Payment Limits: . . . the government already has a program for borrowers to reduce their student loan payments to a ceiling of 15 percent of their income. At this time, just 450,000 borrowers are participating. Clearly, all of those participants would benefit from lowering the max payment to 10 percent. But how many others would?

Student loan balances have really only ballooned over the past decade. So this change would affect very few Americans over the age of 32. For the young adults who it may effect, we must remember that educational attainment has some correlation to income. Those with the most debt will have attended business school, medical school, or law school. Most of those people will also have higher incomes, making them ineligible.

Loan Forgiveness: Of all these parts of Obama’s executive order, the loan forgiveness aspect will have the least impact. By moving the timeline from 25 to 20 years, it could be significant in the long run — but it won’t be felt for decades. Remember, 82 percent of the current student loan debt outstanding was accrued in just the past decade. So it will be at least another 10 years before any of those borrowers have hit the 20-year mark in their student loan payments.

And outside of the fact that his proposals may have little to no economic impact, Peter Schiff of Euro Pacific capital points out that the initiative would actually cause “college tuition increases to not only continue but to accelerate,“ and that ”Obama would be turning higher education in to a third-party payer system (not too dissimilar from our current health care system – which is also characterized by outsized cost increases).”

But what does this mean to the average U.S. taxpayer? Schiff responds:

Under this new system, colleges might charge whatever they want because their customers simply turn the bill over to the U.S. taxpayer who has no say in the transaction. Under such a system what incentive would a kid have to live at home and go to a community college? Why not attend the most expensive university that taxpayer money will allow?

With all of these details taken into account, some have claimed that the introduction of this part of the president’s economic plan is little more than a shrewdly calculated attempt to “reach out to young, educated voters, a key constituency for Obama’s 2008 campaign who now form the core of the Occupy Wall Street movement.”

Link
Well thats a take on this plan I hadn't seen before.

[infinite monkey]

Under this new system, colleges might charge whatever they want because their customers simply turn the bill over to the U.S. taxpayer who has no say in the transaction. Under such a system what incentive would a kid have to live at home and go to a community college? Why not attend the most expensive university that taxpayer money will allow?

Wow, this is some seriously reaching speculation. What do you debate professionals call this tactic?

I'm not surprised, from the link, the first thing I see are big giant ads for Glenn Beck touting Goldline International, said company under investigation for scamming people. Oh, and direct link to listen to Glenn Beck live. All Glenn, All the Time.

http://gawker.com/5591413/glenn-beck...-investigation

Here are some other facts (not speculation) from the National Association of Student Financial Aid Administrators:

The administration indicated that the .5 percent interest rate reduction incentive for borrowers who consolidate their Federal Family Education Loans (FFEL) and Direct Loans will only be offered to a limited pool of borrowers. The incentive will only be available to borrowers who received a federal loan since 2008 and also receive a federal loan in fiscal year (FY) 2012. Eligible borrowers will be notified by the Department and must consolidate between Jan. 1, 2012 and June 30, 2012 because the recent Budget Control Act eliminates the Department’s authority to provide borrower incentives After June 30, 2012. The administration encourages borrowers with FFEL and Direct Loans to wait until Jan. 1, 2012 to consolidate so can benefit from the incentive.

Regarding the more generous IBR terms, the administration says that the plan would not override the current IBR program, but would operate separately. The plan will be a topic at the upcoming loan-related negotiated rulemaking and will likely fall under the “early implementation” provision—meaning that the Department can enact it early. Many specific details are not yet available and will likely not be addressed until negotiated rulemaking and implementation.

Currently, nearly 6 million students have loans from both FFEL and DL servicers. The administration plans to offer repayment incentives for students with split servicers if they move all of their loans over to DL. Students would be able to receive up to a 0.5 percent reduction to the interest rate on some of their loans— .25 percent reduction on consolidated FFEL loans and an another .25 percent reduction on the entire consolidated FFEL and DL balance. The administration has referred to this initiative as a "special" consolidation where students will be able to keep the terms and conditions of their initial loans.

In 2010, Congress passed changes to the IBR program to limit monthly payments to 10 percent of discretionary income (down from the current 15 percent) and forgiving remaining debt after 20 years (down from the current 25 years). The Obama administration hopes to implement these changes, deemed the Pay As You Earn (PAYE) plan, two years ahead of schedule, beginning in 2012.

http://www.nasfaa.org/advocacy/News/...n_Details.aspx


I'm not arguing about whether or not it's a political move. I do not know. But I do know that the article posted is also a political move, from a blogger on an obviously conservative site. It's hardly an exposé about the failures of a plan that isn't even completely hammered out yet.

[classicman]

Thats the point of view the majority has taken. I found the article on FB late at night- didn't see the Beck ads. (sorry)

I guess its all a matter of perspective. If the numbers shake out to be like this part

.. the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month.

I'll lean toward the "political move" camp. I guess every little bit helps. shrug.

[piercehawkeye45]

Originally Posted by classicman

Thats the point of view the majority has taken. I found the article on FB late at night- didn't see the Beck ads. (sorry)

I guess its all a matter of perspective. If the numbers shake out to be like this part

I'll lean toward the "political move" camp. I guess every little bit helps. shrug.

I'm pretty sure that is wrong. It came from an Atlantic article and someone pointed out the mathematical mistake in the comment section. It is heavily dependent on the person and can really help some people.

Not saying I favor the bill but the math is probably wrong.

[infinite monkey]

Well, sure. And student loans have been under fire for a long time. This is why schools are being required to take default management steps...some pretty difficult to administer. Ugh, are they a pain in the rumpus room.

Yet most of the really big abuses have been from proprietary schools, the very schools that the 'pubs will defend to their deaths.

I don't know the answers though. I'm just a pusher of the paper, in the most ethical and beneficial ways I can...what I can control, that is.

[classicman]

Cost for college are ridiculous. Even with all the support that my kid has gotten, he'll come out owing more than my first mortgage - and he goes to a state school.
The real issue here is more the cost, secondary is how to pay for it.

[Spexxvet]

Originally Posted by classicman

Cost for college are ridiculous. Even with all the support that my kid has gotten, he'll come out owing more than my first mortgage - and he goes to a state school.
The real issue here is more the cost, secondary is how to pay for it.

I heard within the last 24 hours that in the last 30 years, higher education has increased 130%, but middle class income has been stagnant.

[classicman]

Hence I said If

[piercehawkeye45]

Originally Posted by classicman

Hence I said If

I wasn't attacking you. Just verifying that there probably are mistakes with the math.

[Happy Monkey]

For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data.

I, for example, graduated with no debt. Thereby making the average debt of myself and several other people quite manageable.

[classicman]

yup. With two in the middle of it... Its freakin ridiculous.
This is apparently the next bubble to burst.
Will we be bailing out the institutions of higher learning soon?

[Lamplighter]

The proprietary schools will survive (Phoenix, etc) because they advertise.

(small print in ads: "Credits are not usually transferable")
(ads should read: "Credits are not usefully transferable")

Their target audience is the unhappy-employed and jobless.
But this audience doesn't realize they probably will never
earn enough to pay back their loans.

Proprietary schools should not be eligible for governmental student loans.

[infinite monkey]

In the past 30 years, proprietary schools have increased...I don't know, tenfold? In most cases, very high tuition and credits that will never transfer.

Private schools have always been expensive. Community Colleges have always been cheaper. 4 year state schools have always fallen somewhere in the middle.

But beware of the latest Clown College, who will gladly take all your money, give you a subpar Clown education, and you won't be able to go on to your Clown Bachelors or Clown Masters without starting all over.

[infinite monkey]

AGREED! WHOLEHEARTEDLY.

I think it's only recently those disclaimers have been there at all. I hear of commissions for enrollment which relies heavily on pushing loans so students can afford the tuition (forget any extra living expense money for transportation etc) and there have been all kinds of uncoverings of less than ethical practices...which really pisses me off because I am nothing if not ethical.

Ugh, but I better shut it. I don't need the NEXT CORPORATIONS TO GREED UP EVERYTHING jumping bad on me.

[classicman]

Agreed. The useless schools with useless degrees have found their niche as Lamp said.

The rest are still getting crazy. At least around here.
Note that the Comm College costs is based upon living and eating at home.

That brings me to the next insanity --- Books! They come to over $400 a freakin semester.
And when you sell them back - IF IF IF - they take them, you get about 25 cents on the dollar.
Many classes are only accepting new books. Its another racket of its own.