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It says it won't work if you have any loans earlier than 2008... DAMN My first loan was in the 07-08 FA year. Disbursed in 07. LOL I guess it is the older "less generous" plan for me.
This program was ALREADY passed by congress. Speeding it up is NOT a gimmick at all because it has tangible effects on the economy. This is not going to help anyone making even a decent amount of money because of the requirement is that your student loan payment has to be under 10% of your income in order for this even to have an effect.
In other words, while you're employed you're not making very much money. There's a chance it will go into savings, but considering the low income the chance of that happening is very small. Your comparison of an across the board rate cut is bad because of this. Show me the numbers for that program that account for the same segments this would help and THEN we can do a comparison.
There' a reason why unemployment benefits and targeted measures for the poorest segments of our society always have the highest stimulus effect. As I pointed out above, you're also ignoring that an immediate side affect of an increase in taxable income and how inflation plays into this.
Also, of course this isn't going to be that great of a program in the grand scheme of things. But Obama is doing something with the power he has and its a program that has already been approved. I don't think anyone has claimed its the end all be all so I'm not sure why that strawman is being errected.
It says it won't work if you have any loans earlier than 2008... DAMN My first loan was in the 07-08 FA year. Disbursed in 07. LOL I guess it is the older "less generous" plan for me.
Get back to us when Barry "buys votes" with taxpayers dollars at anywhere near the same level dubya did in 2003 campaign year with Medicare Part D and $50B-subsidized Medicare Advantage.
http://www.theatlantic.com/business/...nt-cap/247470/With a splashy headline yesterday, I revealed that the farthest reaching aspect of President Obama's executive order to help student loan borrowers would save the average person less than $10 per month. I also commented on the other two aspects of the plan, which I observed also wouldn't help most Americans with their student loans. That is all correct, but some additional nuances about the 10% payment cap that have been brought to my attention are worth explaining better.
The Basics
This aspect of the new law attempts to relieve students with relatively high student loan costs and relatively low incomes. It does this by capping student loan payments at 10% of a person's discretionary income. Even the basics of this calculation are complicated, so please bear with me. (And check out this website for additional information.)
To calculate your eligibility, you must figure out your discretionary income under the definitions of the law. This is calculated by taking your gross income and subtracting 150% times the poverty line.
For example, in 2010 for a single person, the poverty line is $10,890. Multiply that by 150% and you get $16,335. If you're single, subtract that number from your gross income. For example, let's say you make $40,000 per year. Your discretionary income per this law would be equal to $23,665.
Under current the old system, you would multiply that by 15% to get the maximum annual student loan payment you would be required to make. That's $3,550 or $296 per month.
Under the new law, the calculation would be almost identical. The difference is that the cap is now at 10%, instead of 15%. That makes your annual maximum student loan payment $2,367 or $197 per month. You could pay up to $100 per month less in this example, compared to the old system.
That is, if you have enough student loans. Remember, if your student loan payments are smaller than that maximum, then the law doesn't help you. In the scenario above, you would need to have graduated with loans in excess of about $28,000 (assuming a 6% interest rate and a 20-year term) before you see any payment reduction.
The Details
Now even if you appear to qualify for a payment reduction according to those calculations above, you still might not. There are a few more things you need to know.
First, the loans we're talking about aren't just any loans. They're direct federal loans or government-guaranteed private loans. If some of your loan balances are purely private, then subtract those out from your total balance to see if you qualify. And the payment reduction would only apply to what you pay on your government-backed loans.
Second, whether or not you can benefit from the new 10% cap depends on when you took out your first student loan. You may qualify if:
* You took out all of your loans in 2012 or later (future students)
* You took out the loans in question after 2008 and a loan after 2012 (mostly current students)
So if you graduated college in 2011, then you don't qualify. (But you could still qualify for the 15% cap. I'm just considering Obama's executive order here.)
Finally, if you're already in default, then you won't qualify.
The Reach Rethought
First, considering that this will really only apply to graduating seniors and maybe a handful of graduate students, we can re-think the average case. But that's because the pool we're talking about now is much, much smaller than I had previously thought. I had initially believed that anyone with student loans could potentially benefit from this program, which led me to use the decade average student loan burden (~$21,760).
Instead, the much tinier pool would more aptly be characterized as having an average student loan balance of $28,720, according to projections I've seen. Student loan interest rates are also much higher now than they were earlier in the decade, in the ballpark of 8%. With those assumptions, a single person making less than $45,000 would begin to see some savings. That's about the median earnings for a young adult with a bachelor's degree, according to the Department of Education, which implies that as many as half of graduates could potentially qualify for the program.
That is significant. But remember, the universe we're talking about here is just new graduates. And as their incomes rise, those savings will begin to decline as they're forced to pay for more of their loans. So this program isn't really meant to assist with the overall burden of student loans of the average American. Instead, it intends to help those with lots of student loans who either have a low income after school during their early years or have a relatively low income throughout their career.
Economic Impact
To be sure, this rule will provide some relief to the handful of borrowers who qualify. But due to the limiting criteria of who can actually take advantage of this program, it's hard to see how moving up the implementation date to 2012 instead of 2014 would provide much immediate stimulus to the U.S. economy. The earliest pool of college students that the law would apply to won't graduate until June 2012. They already get a six-month grace period after that. So they won't have to begin paying loans until 2013 anyway. And other hardship programs already exist to let them wait even longer to pay, if necessary. It may be available sooner to some who earned master's or doctor's degrees, but they tend to have higher incomes -- so its impact should also be limited for advanced degree holders.
As a stimulus measure hoping to help the broader economic recovery, this program's impact will be extremely small in 2012. Only a handful of graduate students will be participating. In 2013, some 2012 college graduates may begin participating as well. The department of education expects 1.7 million students to graduate this spring, and some portion of that number will begin to take advantage of the program in 2013.
Good article.
Like he said, there is only so much that he can do by executive order.
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?
Republican controlled legislatures and Republican governors, have consistantly cut back on funding to higher education, causing es in tuition that have been sustained and very marked. They do this because of the aversion to raising taxes.Yep, that's what happened.
The level of debt for graduating seniors has been rising commensurately with tuition inflation. Not hard to draw a cause-effect relationship there.
It doesn't take a genius to see that the increased debt levels will preclude some amount of saving, and spending on other things like first houses, etc.
Again, this is obvious to those who have chosen not to drink the Fox "news" coolaid. If all you got is the eyeroll smiley to refute this, that seems par for the course.
"cut back on funding to higher education"
the Banksters' Great Depression has greatly reduced property, sales, state income taxes have caused the biggest crimp in state/local budgets for funding of anything.
Some states, like Repug WI and MI, have cut funding for public services while also cutting taxes on corporations, increasing their subsidies.
Congress is a joke. I have no illusions whatsoever about them being any kind of a solution to this mess.
IMO, CC captured what that something is in the thread le.Gimmick it may be, but at least it is *something*.
Makes sense, I agree with you here. The program will probably help some underemployed graduates avoid or delay default. There is some merit to that purpose, but unfortunately there's not a stimulative benefit to the economy that's associated with it. It's basically a positive side effect, but not something aligned with the goals of the program. At least not the goals as Obama has stated them.
Not sure I follow. If the requirement is that your loan payment has to be less than 10% of your income, that's going to make the program more likely to benefit higher incomes than lower ones. The higher your income, the more likely it is that your loan payment is less than 10% of your income. If that's the requirement, then the more debt / less income you have, the less likely the program is going to benefit you.
With almost have of U.S. households not having any income tax liability to begin with, all an increase in taxable income resulting from this program would mean is that the program is benefitting higher income households.There' a reason why unemployment benefits and targeted measures for the poorest segments of our society always have the highest stimulus effect. As I pointed out above, you're also ignoring that an immediate side affect of an increase in taxable income and how inflation plays into this.
Good point. We should get rid of Medicare D entirely. Democrats, you okay with that?
CG, my wording was really poor in explaining why this benefits lower income people only but if you'll read the article posted it does a great job of explaining it.
Yeah I posted before seeing VY's article. I'm fixing to read it now.
Edit: Good article. After the read I'm still going to stick with "gimmick" in the context of the program being sold as something that will stimulate the economy, but that's not to say that there aren't going to be some people who get some help out of this that they could really use.
Last edited by coyotes_geek; 10-27-2011 at 04:02 PM.
I think that they are definitely going to spin it as favorably as possible (such is politics) but I do feel - as you said - this will help people who really need help.
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