Obama Taps Taxpayers For Student Stimulus
By Chris Stirewalt
Published October 26, 2011
Obama Looks to Wring Stimulus From Saturated Student Loan Market
“$1 Trillion”
-- Estimated amount of student loan debt owed by Americans.
In keeping with his new campaign theme of “we can’t wait,” President Obama today will roll out a plan to put more money in the pockets of some of the nation’s 36 million student loan recipients.
Obama has broad la ude in this area – certainly broader than the first two parts of his western campaign trip, underwater mortgages and subsidies for hiring veterans – because one of his early legislative initiatives was to have the federal government take over the student lending business in America.
Obama argued for the measure in 2009 as a cost-savings initiative, saying that the old system of privately issued, government secured loans reduced the amount of available money for needy students and also prevented the feds from making the system more efficient.
But Obama is now seeking to use that new power to obtain a taxpayer-financed stimulus that Congress won’t approve. The idea is to cap student loan repayment rates at 10 percent of a debtor’s income that goes above the poverty line, and then limiting the life of a loan to 20 years.
Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.
Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.
The president will also allow student debtors to refinance and consolidate loans on more favorable terms, further decreasing the payoff for taxpayers.
Obama’s move comes at a moment when many economists are warning of a college debt bubble that is distorting college tuition rates and threatening to further damage credit markets. The president’s move is intended to make college more affordable for more people, which will, in turn allow universities to jack up their rates.
As in the housing bubble, cheap credit on easy terms increases the amount of money chasing the product (in this case a diploma) allowing schools to increase prices. This inflation makes it harder for middle-class families to afford paying their own tuitions, driving them into the government financing program, which, you guessed it, drives up costs further still.
Obama’s goals, aside from continuing to encourage young people to spurn the private sector in favor of service jobs, is to try to juice the economy. Those who participate in the program could see their monthly incomes rise by hundreds of dollars, thereby increasing the money they have to buy stuff and try to juice the economy.
A more modest program already in place has been a bit of a bust with only 1.25 percent of debtors signing up, likely because of the unpleasant notion of additional paperwork and government reporting hassles. But by sweetening the deal and putting a big PR push behind it, Obama is betting that he can get people spending in time to help shore up his re-election chances.
The best part for Obama is that he can obligate the Treasury without Congressional approval thanks to the passage of what he described as a cost-saving measure in 2009.
Suzy Creamcheese can't borrow 212,000 thousand dollars. What a poorly researched article. That is the only way you can usually write such a pile of crap.
Also economists are warning about a bubble with private student loan debt. Public debt is far more limited and isn't the issue but people want to continue to write garbage like this and act as though they are the same thing.
So under this plan little Suzy can borrow a quarter million to go to an Ivy League school, meet Sammy Silverspoon and get married, never work a day in her life, and never have to pay back her school loans. Great.
True, the number was probably inflated but the ability to not pay wasn't.
Really? Can you explain to me under what government loan programs she's going to get a quarter million to go to school?
Thanks in advance.
Probably inflated? Its over 400% more of what you can borrow to get an undergrad degree.
A student under the age of 24 is limited even more by what they can borrow for an undergraduate degree. I know that an independent student is allowed up to 58,000 but someone under 24 is NEVER going to get independent status and they're going to be limited to about 30,000.
http://studentaid.ed.gov/PORTALSWebA...udentloans.jsp
We can discuss the merits of Obama's plan, but when the argument against it is framed by such ridiculous standards not bound by reality it doesn't make a good case for that point of view.
Fox News. CC don't be embarrassed to link this garbage
http://nation.foxnews.com/president-...udent-stimulus
Does anyone know where I can read the actual plan or a framework for it?
From what I can tell the forgiveness period would be reduced from 25 years to 20 years. So you'd be losing out on five years of collecting the money. The OP doesn't bring that up at all because it doesn't help in presenting the completely dishonest picture. Also doesn't bring up that the reduction in income percentage is from 15% to 10% either because that doesn't help much.
Certainly doesn't bring up that with smaller loan payments the government will also recoup more in taxes which help offset the cost right off the bat. In other words, the cost up front is not even the full amount of the reduction.
Furthermore, when you factor in inflation, losing payments at the end of the life span of a loan is not nearly as good as getting money now. Why is that not taken into consideration by the OP?
This is nothing new as Dumbya signed a student relief bill back in 2007.
Heres your details, Manny...
Clearing Up Some Confusion About the New Federal Student Loan Rules
tweet
RON LIEBER, On Wednesday October 26, 2011, 8:48 pm EDT
On Wednesday, President Obama introduced two changes to the federal student loan program that could affect several million borrowers. The broad outlines of his plans to encourage loan consolidation and assist people who are struggling financially are reasonably clear.
But if the questions sent to our Bucks blog from indebted people are any indication, any change in Student Loan Land almost inevitably leads to enormous confusion. Many questions had to do with whether private loans, the kind that come from banks and often have higher and variable interest rates, are part of these changes. Nothing is changing with those loans.
This is crucial, since many of the people in the worst sort of trouble — the ones you’ve read about with six-figure balances — often have both private loans and federal loans.
Instead, only those with different kinds of federal loans — an estimated 5.8 million borrowers — will be able to consolidate them into one loan under the new plan and also save themselves a bit of money.
Borrowers also remain befuddled about the confusing eligibility requirements of a two-year-old program that limits the monthly payment for certain federal student loan borrowers based on their income and then forgives any remaining debt after 25 years.
Starting sometime next year, the limit will be cut by a third for certain borrowers, and that will lower payments. Also, loan forgiveness will happen after 20 years. (The income-related changes were already scheduled to happen in 2014, but they will occur sooner now.)
Today, at least 450,000 people participate in the federal income-based repayment program that started about two years ago, though there are probably many more borrowers who are eligible but don’t know about it or haven’t figured out how to sign up.
I’ve answered as many of the reader queries as I can below, and will answer more on the Bucks blog in the coming weeks.
Q. Who is eligible?
A. People with at least one federal loan that they borrowed directly from the federal government and at least one that originated with a bank or other lender. If you have a bunch of bank-issued federal loans but no loan directly from the government, you can consolidate them under an older federal program, but it won’t save you as much money.
The PLUS loans that some graduate students have taken out in recent years are eligible. Perkins Loans and many federal loans for people entering health professions are not eligible. And again, private student loans are not part of the mix here either.
Also, if you’re in default on the loans, you won’t be eligible.
Q. How do I know what kind of loan I have?
A. Don’t be embarrassed to ask, since many people have forgotten or never knew in the first place. Call your lenders now and ask them. The Education Department plans to inform all eligible borrowers in January as well. If you haven’t heard from them by the end of that month, call them at 1-800-4FEDAID (1-800-433-3243) and ask.
Q. Is there a limit to the number of federal loans I can consolidate?
A. No.
Q. What will I save if I consolidate under the new program?
A. It depends, and the formula for calculating your new interest rate is complex.
First, you’ll subtract 25 basis points (a quarter of a percentage point) from the interest rate of your federal loan that a bank or other lender originated. You can also subtract another 25 basis points for both those bank loans and any loans that came from the federal government directly if you agree, once the loans are consolidated, to let the federal government (which will be the new lender of record) pull the payment automatically from your bank account each month.
The new rate will then be a weighted average of the two (newly discounted) rates from the two different types of loans, based on the balances of each loan.
Q. When can I sign up, and for how long?
A. Enrollment should begin in January and is scheduled to end on June 30, 2012.
Q. Can this help me make more of my federal loans eligible for forgiveness if I work in certain public service jobs?
A. Yes. The only federal loans that are eligible for that forgiveness plan are ones in the federal direct program, which is where you end up when you consolidate your federal student loans in this fashion. By consolidating, older federal loans that banks originated for you would then become eligible.
Q. What if I recently consolidated? Can I unconsolidate to take advantage of this new discount?
A. No.
Q. Who is eligible for these income-based repayment plans in the first place?
A. Eligibility is based on something known as “discretionary” income, which the federal government defines as anything above 150 percent of the poverty level. The poverty level depends on your state and the size of your family. The big idea here is to only allow people to qualify whose income makes it hard to afford their full federal student loan payments. (Private loans do not factor into income-based repayment.)
All of this is outlined in plain English on IBRinfo.org, a Web site maintained by a nonprofit group called the Project on Student Debt. Your lender or the company servicing your loan will decide whether you’re eligible.
Q. What is changing with these programs as a result of Wednesday’s announcement?
A. Currently, people who qualify pay no more than 15 percent of their discretionary income toward federal student loan payments each month. You only have to make payments for 25 years, even if there’s still a balance left.
The new plan will lower the cap to 10 percent of discretionary income and waive any balances after 20 years of repayment. (Again, better deals are available for people who are working in certain public service jobs.)
Q. Any other catches?
A. Yes. This new income-based plan is not available to people who graduated in 2011 or earlier and have no plans to take out any new federal loans. Instead, you must have at least one federal loan from no earlier than 2008 and also take out one more in 2012 or later to qualify.
Graduate students are eligible, too, but you have to have taken your first loan out no earlier than 2008 to qualify, in addition to taking out at least one more in 2012 or later. So if you’re a sixth-year doctoral student, this might not work for you. That said, you might be eligible for the older, less generous plan.
Also, here too, your loans can’t be in default. This was disappointing to Robert Applebaum, the founder of forgivestudentloandebt.com. His two-year-old movement along with the pe ion he started on the White House’s Web site helped inspire the adjustments to the federal loan programs.
“Income-based repayment is fantastic if all you have are federal loans and are current on your repayments,” said Mr. Applebaum, 37, who lives on Staten Island and is current on his own student loans. “But people are drowning in debt and penalties, and the government has made it so that first you have to get your head above water. Another step could have been to eliminate that requirement, and they didn’t.”
Q. What if I still have questions?
A. The financial aid ace Mark Kantrowitz of finaid.org has posted his take on the announcement on the Choice blog. Otherwise, call the Education Department and keep an eye on studentaid.ed.gov and the Project on Student Debt’s Web site for more details as they become available.
So the Fox article was full of .
Thanks for clearing that up, Suzy.
http://www.politico.com/news/stories/1011/66999.html
If you've amassed 10's of thousands of dollars in debt, you probably shouldn't be taking that sweet public sector job, tbh . . .
so if i go back to school for a semester and get a loan can i pile these up with the ones i had 10 years ago and get some breaks?
hmmm
Quoting that puts you on the same level as boutons. Seriously using cable news aa source is irresponsible and lazy.
"you on the same level as boutons"
shame on you and your false equivalence.
Nobody is up on the same level as The Great Boutons
We wouldn't have to worry quite so much about student loans if the Republican " the poor" campaign hadn't claimed as one of its first victims government financing for state universities.
We as a nation have decided it is in our best interest to saddle people coming out of college with a mountain of debt, because the conservatives who worship the rich can't stand to see their heros shoulder the cost of the system that made them wealthy in the first place.
They get out of college then have to spend years paying it back, crowding out other spending/saving, and we wonder why our economy is sputtering along like a asthmatic 80 year old?
Yep, that's what happened.
So basically the plan is to find a bunch of people who have federal loans and bank loans, pay off the banks they borrowed money from and make the taxpayers guarantee their entire student loan debt. The government will also lower the interest rate on these loans which will lower participants monthly payments, and this will stimulate the economy because supply side measures always work.
What's not to love about the idea?
Government backed loans are already backed by the government. The plan was to do what was already being done.
Actually, this type of stuff DOES always work to stimulate the economy. Its like unemlpoyment benefits as in this money is guaranteed to be spent on general goods and services and not sit in some low interest yielding account.
"make the taxpayers guarantee their entire student loan debt."
this was already the case, even after dubya "privatized" student loans by handing the guaranteed loans to the banks, and $100Ms in risk free profits from those loans, instead of those profits coming back to the govt (tax payers).
There's no such guarantee at all. To qualify for the program your loans can't be in default. If your loans aren't in default, there's a pretty good chance you're employed. What happened the last time we tried putting a little extra money in employed people's pockets via the cut in payroll tax witholdings? Debt repayment and the savings rate went up far more than consumer spending did. Some people spent more, most just pocketed the money.
There's no reason to expect this program will produce different results because at the end of the day a lower student loan payment isn't going to fundamentally change anyone's outlook on the economy as a whole. Basically this program isn't anything more than a campaign gimmick designed to placate the OWS crowd.
You say that as if anything really substantive will get past the House of Representatives.
We all know that the Republicans in Congress are more interested in keeping the country in the toilet so they can win re-election and the white house than actually doing anything.
They have all over the president and any other Democrat willing to comprimise, and so we are left with pissant things like this.
Gimmick it may be, but at least it is *something*.
Actually, that may change.
It is possible to be unemployed and still be in forebearance.
Given the high level of unemployment for young people, I would be willing to bet there is going to be more than a slight uptick in default rates as the weak economy grinds on.
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