Income-Based Repayment and Loan Forgiveness: Implications on Student Loan Debt

[Matt]

This article originally appeared in The Journal of Financial Planning, April 2015

by Jarrod Johnston, Ph.D., CFP®; and Ivan Roten, Ph.D., CFP®

When it comes to paying for college, student loans are indeed the norm, rather than the exception. The majority of undergraduate students in the United States have received some type of student loan, and the average balance of those loans for undergrads in 2012 was $25,900, according to data from the National Center for Education Statistics.

For many young adults, exiting their college years and entering the workforce with sizable debt can be a life-long financial challenge. However, individuals with low income or high debt levels often benefit from income-based repayment plans.

Repayment plans and loan forgiveness programs are scheduled to be expanded in 2015 and could dramatically change decisions about student loan debt. Payment amounts will be based on the ability to pay instead of the level of debt and interest rate.

Families with children planning for college may have an increased need for advice because of the increasing complexity of student loan repayment. This article examines the impact of income-based repayment plans and loan forgiveness on individuals with student loan debt in an attempt to provide financial planners with the information needed to best serve their clients.

The State of Student Loan Debt


Student loan debt rose by 328 percent from $241 million in 2003 to $1.08 trillion in 2013, according to the Federal Reserve Bank of New York. The percentage of students with loans and average balances are shown in Table 1. The average amount borrowed in 2012 was $25,900 for undergraduates, and that average amount rises to $46,620 for masters’ students and $102,460 for future doctors and lawyers. Students at for-profit schools borrow at substantially higher levels. Belfield (2013) found that students in for-profit colleges borrow four times as much as students at public colleges with significantly lower repayment rates. McGuire (2012) showed that many students at for-profit colleges are often in a worse financial situation after attending because of the debt burden.

For many students, the financial aid system is confusing and the amount of debt can become unmanageable. Andruska, Hogarth, Fletcher, Forbes, and Wohlgemuth (2014) found that 37 percent of student borrowers were unaware of their amount of debt, and 13 percent of student borrowers incorrectly believed they had no student debt. Fuller (2014) argued that student financial aid has shifted to a confusing array of lending programs that are inefficient and need reform. Unfortunately, there have been few alternatives and little relief for students with excessive student loan debt. Kim (2007) and Minicozzi (2005) found that high debt levels adversely affect graduation rates and influence career decisions. However, a new alternative that determines the payment based on income is rising in popularity.

Income-Based Repayment


Income-based repayment (IBR) of student loans has been available since July 1, 2009.1These plans calculate the payment amount based on income and family size instead of the standard amortization method using the amount of debt and interest rate. These plans will dramatically reduce the burden of student loan debt for recent and future borrowers.

There have been several versions of these repayment plans, but they share three key characteristics: (1) monthly payments are capped at a percentage of the borrower’s discretionary income, typically 10 to 15 percent; (2) the length of the loan is limited to 20 to 25 years; and (3) any remaining balance at the end of the payment period is forgiven.

IBR plans can be coupled with loan forgiveness available to public service employees to further limit the burden of student loan debt.

Public Service Loan Forgiveness


Public Service Loan Forgiveness (PSLF) is a program that forgives the remaining student loan balance after 10 years of loan payments and qualified employment.2 Qualified employment includes full-time employment with a government organization (federal, state, or local), a 501(c)(3) nonprofit organization, and other nonprofit organizations that provide specified public services.

Graduates with excessive debt are free to pursue lower-income jobs or careers with nonprofits. A portion of higher education costs has been shifted to the federal government. Graduates who are unable to find reasonable employment will not necessarily face a lifetime of poverty. Although there are numerous benefits, borrowers must be aware of the complexities of the programs to fully benefit and avoid potential drawbacks.

How These Programs Work


IBR plans and PSLF are available only to borrowers with federal student loans, such as the Stafford, PLUS, and consolidation loans made under the Federal Direct Loan Program or the Federal Family Education Loan (FFEL) Program. Federal Direct Loans are issued by the Department of Education. FFELs were issued by financial institutions and guaranteed by the Department of Education, but on March 30, 2010 FFELs were eliminated by the Student Aid and Fiscal Responsibility Act, and the Department of Education became the sole issuer of federal student loans. Parent PLUS loans and private student loans are not eligible for IBR plans or PSLF.

The original IBR plan (IBR “classic”) caps the payment at 15 percent of discretionary income for 25 years.3 Discretionary income is an individual’s adjusted gross income (AGI) minus 150 percent of the poverty line. Using the poverty guidelines in Table 2, a single individual earning $35,000 with a $60,000 loan would have an initial monthly payment of $217.4 Any balance remaining after 25 years of payments (10 years if the borrower works in public service) would be forgiven.

Changes to IBR


For Federal Direct borrowers who took out their first loan after September 30, 2007, the IBR plan (IBR “current”) is more generous.5 Loans issued by other financial institutions through the FFEL program are not eligible.6 Payments are capped at 10 percent of discretionary income, and the term is limited to 20 years. The initial payment for the individual above would now be $145.7

Table 3 provides a comparison of the “classic” and “current” IBR plans. The total amount paid declines by $53,416. The present value cost of the loan declines by $24,082, and the amount forgiven at the end of the loan rises by $50,478. The recent changes to the IBR plan make them much more attractive.

Scenario 1: Public School Teacher


Jordan recently graduated college and accepted a teaching position at a public school with an annual salary of $35,000. He has $60,000 of student loan debt with a 5 percent interest rate.

Table 4 shows the difference between a standard, 10-year repayment, and a 20-year IBR. The IBR reduces Jordan’s first-year payment by $491 per month. The annual savings in the first year is $5,892. The present value of the IBR payments is $30,327 lower than the standard repayment plan.

The IBR plan also caps the payment at the standard, 10-year payment. Regardless of Jordan’s income, his payment will never exceed $636. However, he still has to pay for 20 years (10 years if he is eligible for the PSLF program) or until the loan is fully paid.

Jordan works for a public school and is eligible for loan forgiveness after he has made payments for 10 years through the PSLF program. The total amount paid drops from $49,884 to $20,525 because of the forgiveness. The present value drops by $13,785, and the amount forgiven falls by $681. The present value difference, $13,785, spread evenly over 10 years amounts to approximately $1,378 per year. Essentially, a public service job is worth more than $1,000 more per year than a private sector job.

Scenario 2: Med School Grad


Riley recently graduated medical school with $140,000 in student loans at 5 percent interest. She has accepted a position with a nonprofit organization with an annual salary of $50,000. The difference between a standard, 10-year repayment and a 20-year IBR is shown in Table 5. The IBR reduces Riley’s first-year payment by $1,215 per month. The annual savings in the first year is $14,580. The present value of the IBR payments is $86,088 lower than the standard repayment plan.

Because she works for a nonprofit, Riley is eligible for loan forgiveness after she has made payments for 10 years through the PSLF program. The total amount paid drops from $90,150 to $37,720 due to the forgiveness. The present value drops by $24,676, and the amount forgiven declines by $17,570. The present value difference, $24,676, spread evenly over 10 years amounts to approximately $2,000 per year. In Riley’s case, a public service job is worth $2,000 more per year than a private sector job.

Comparison of Repayment Plans


The payment amounts, total paid, and amounts forgiven for a variety of income levels and loan sizes are given in Table 6. The difference in payment methods is obvious. The amount paid using the standard, 10-year payment plan is not affected by income level. Conversely, a borrower with an income of $35,000 will pay the same amount on a $60,000 loan as he or she would on a $100,000 loan using an IBR plan. If the borrower’s income level is low enough, the regular payment amount would be zero. No payment due to low income is considered a regular payment in the calculation of the forgiveness date.

Marriage and Dependents


A married borrower must include spousal income in the calculation of AGI unless the couple files separately on their tax returns. If the couple files separately, the IBR repayment amount will be similar to the amount each would pay if they were single.8 If the couple has a child, the individual who claims the child will reduce his or her payments. Married couples or couples planning to get married where either partner has student loan debt needs to consider their options to minimize their debt burden.

Parents will have lower payments because their poverty line is higher. Returning to the first scenario, Jordan is earning $35,000 and has $60,000 of student loans. Now assume he is the single parent of two children (he had no dependents in the original example). His initial monthly payment declines by $104, and the total paid is $31,246 lower.

A couple with children often compare the cost of child care to the cost of one of the parents providing the child care instead of working. The parent who provides child care will not have to pay on his or her student loan if their income is low or zero. The other parent will claim the children as dependents and lower his or her student loan payment. If only one parent has a significant student loan balance, the benefit will be substantially higher if that parent provides the child care.

Other Considerations


Payments that are deferred because the borrower is in school or during a grace period do not count as payments for the IBR or PSLF program. Low income may result in a zero payment amount using the IBR calculation. A zero payment due to low income does count as a payment under both the IBR and PSLF program. The IBR payment increases as a borrower’s salary increases, however the IBR payment is capped at the payment for the standard, 10-year repayment plan.

Full-time employment for the PSLF program is defined as an annual average of 30 hours per week. If the employment contract is for eight months of a 12-month period, an average of 30 hours per week for the eight-month period is considered full time. A person with two or more part-time jobs of qualified employment is considered full time if the combined employment averages at least 30 hours per week.

The IBR payment may not cover the interest due. In the first three years of IBR payments, the missed interest amounts are forgiven. Beginning in the fourth year, if
IBR payments do not cover the interest due, the interest accrues but is not capitalized into the loan unless payments are switched from IBR.

Finally, consider tax implications. The amount forgiven at the end of an IBR program is treated as taxable income, whereas the amount forgiven under the PSLF program is not considered taxable income. A borrower using the IBR program must prepare for the tax bill of the forgiven amount in the final year.

Conclusion


IBR plans and the PSLF program have numerous implications. For individuals, excessive student loan debt will not be as problematic as it has been in the past. Borrowers’ payments are not based on the amount of their debt unless their income is above a certain threshold. For borrowers below the income threshold, their payments are based on a reasonable percentage of income. In fact, students may be better off accruing student loan debt instead of credit card or other types of private debt. However, student loan debt generally cannot be discharged in bankruptcy and 20 years of payments is a long time to pay debt.

For persons near the poverty line, student loan debt will have to be repaid only if their income increases substantially. Borrowers are able to push the debt on the government if their student loan decision was a bad one and their income does not rise. Either borrowers increase their income because of their additional education and pay a reasonable payment, or their income is unchanged and no payment is required. The possibility that questionable schools will benefit at the expense of the taxpayers must be monitored.

IBR plans and the PSLF program essentially shift some higher education costs to the federal government. This may be a positive outcome for individuals but the complexity of the method is inefficient. It does little to rein in the rising costs of higher education and is susceptible to fraud. It also increases the deferred liabilities of the federal government.

Currently, IBR plans are only available to those who borrowed directly from the federal government and whose first loan was granted after September 30, 2007. However, the U.S. Department of Education has been directed to expand the program. Proposed regulations are expected in mid-2015 (Carrns, 2014).

Individuals considering IBR plans and the PSLF program must take into account the implications marriage and children have on their student loan debt. Moreover, they may find public service jobs more attractive given that forgiveness is earned after 10 years, and they may be reluctant to switch jobs, particularly public service jobs, after a few years.

Jarrod Johnston, Ph.D., CFP®, is an associate professor of finance at Appalachian State University where he teaches courses in finance and retirement planning.

Ivan Roten, Ph.D., CFP®, is an associate professor of finance in the Department of Finance, Banking and Insurance at Appalachian State University.

Endnotes

1. College Cost Reduction and Access Act of 2007, Pub. L. No. 110-84, 121 Stat. 793 (2007).
2. United States Code, 2006 Edition, Supplement 5, Title 20—Education, Section 1087e(m).
3. College Cost Reduction and Access Act, Pub. L. No. 110-84, 121 Stat. 793 (2007).
4. $35,000 – $17,655 = $17,345. $17,345 x .15 = $2,602. $2,602/12 = $217.
5. Health Care and Education Reconciliation Act of 2010, H.R. 4872, 111th Congress, Section 2213 (2010).
6. All federal student loans, Federal Direct and FFELs, are eligible for the IBR “classic” plan. To be eligible for the IBR “current” plan, the loan must be originated by the federal government, the borrower’s first loan must be after September 30, 2007, and the borrower must have taken at least one loan after September 30, 2011.
7. $35,000 – $17,655 = 17,345. $17,345 x .10 = $1,735. $1,735/12 = $145.
8. United States Code, 2006 Edition, Supplement 5, Title 20—Education, Section 1098e(d).

References


Andruska, Emily A., Jeanne M. Hogarth, Cynthia Needles Fletcher, Gregory R. Forbes, and Darring R. Wohlgemuth. 2014. “Do You Know What You Owe? Students’ Understanding of Their Student Loans.” Journal of Student Financial Aid 44: 125–148.

Belfield, Clive R. 2013. “Student Loans and Repayment Rates: The Role of For-Profit Colleges.” Research in Higher Education 54: 1–29.

Carrns, Ann. 2014, August 13. “Help Is on the Way for Repaying Student Loans.” New York Times.

Fuller, Matthew B. 2014. “A History of Financial Aid to Students.” Journal of Student Financial Aid 44: 1–68.

Kim, Dongbin B. 2007. “The Effect of Loans on Students’ Degree Attainment: Differences by Student and Institutional Characteristics.” Harvard Educational Review 77: 64–100.

McGuire, Matthew A. 2012. “Subprime Education: For-Profit Colleges and the Problem with Title IV Federal Student Aid.” Duke Law Journal 62: 119–131.

Minicozzi, Alexandra. 2005. “The Short-Term Effect of Educational Debt on Job Decisions.” Economics of Education Review 24: 417–430.

Learn More


Access the archived Financial Counseling Community call and presentation, “Financial Planning for a College Education,” by Mark Kantrowitz of Edvisors.com, on FPA Connect atfpa.adobeconnect.com/p87ojhjcuw5, where Kantrowitz simplifies the complex world of student aid and student loan options.


The post Income-Based Repayment and Loan Forgiveness: Implications on Student Loan Debt appeared first on Saverocity Finance.

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[henrygeorge]

"Note that the ‘government bureaucracy & unions’ are able to interview and reject talent of low quality if they so choose."
Speaking with first hand experience as a contractor who has dealt with several agencies, and with many family members also in government, most government employees are the absolute bottom of the barrel. They get in at below average pay, and stay because the workload is easy and they are too incompetent to pursue private work with few actual skills. Promotions come based on how long you've "put in", filling the middle and upper management with incompetence, and then retiring with a pension based on your 3 highest earning years. They desire low quality talent that recognizes with their plight to just put in minimum effort to get by. It's an absolute sham. I'm sure there are exceptions, but that's the rule.

IBF & PSLF shouldn't exist for new graduates going forward, for the reasons I mentioned in the blog comments. It misaligns incentives. For the people already in debt, I'd rather see them get a tax write off for every dollar they pay towards their loans. At least then they are still have incentive to live within their means and pay down debts themselves.

Higher ed cost cutting isn't as difficult as people make it out to be. Federal student loans and bankruptcy laws allowed university budgets to inflate costs. Nix both of them. Put a cap on what private banks are allowed to charge as interest on student loans. Banks will still seek profitable ventures with individuals who are worthy of loans. People say the downside is the disadvantaged won't be able to go to college. Those same disadvantaged are the ones going to for-profit colleges, taking on debt and getting a piece of paper while picking up no skills. They can prove themselves in highschool & community college. Pick up a trade, get established. Go back to school in their late 20s if it makes financial sense.

Government can't solve anything, ever. The revolving door of lobbyists/politicians and general incompetence of the government work force can't be ignored anymore. People need to take responsibility for their own destinies.

 

[ElainePDX]

"Oregon's tuition-free 'Pay It Forward' college finance plan appears dead"

http://www.oregonlive.com/education/index.ssf/2014/08/oregons_tuition-free_pay_it_fo_1.html

 

[Alex1432]

Henry saying government employees are the bottom of the barrel seems to insult a lot of people considering the government employs so many.

I think the simplest solution is to put pressure on colleges and banks to reign in cost by simply letting student loans be written of after 20k per year or some number. Banks would be forced to re consider handing out a loan for 50k if 30k could be wiped with bankruptcy.

 

[henrygeorge]

It wasn't intended as an insult, but it's the reality of the world. Government doesn't have the profit motive to meet deadlines, reduce cost, and keep people busy. Because many government employees are unionized, its impossible to get rid of them after they've completed their probationary period - unless they screw up egregiously. I've personally seen it in 4 different agencies.

As long as the feds are backing loans, college costs will not come down.

 

[smittytabb]

Henry saying government employees are the bottom of the barrel seems to insult a lot of people considering the government employs so many.

I think the simplest solution is to put pressure on colleges and banks to reign in cost by simply letting student loans be written of after 20k per year or some number. Banks would be forced to re consider handing out a loan for 50k if 30k could be wiped with bankruptcy.

First of all, it needs to be mentioned that student loans are the one kind that are not dischargeable in bankruptcy. Putting pressure on colleges to reign in costs as a strategy does not take into account the fact that the states have defunded their public universities at staggering rates over the last quarter century and especially in the past decade. Costs that used to be paid for by the states are being passed along to the students. Most "public" universities charge so much because they are hardly public anymore.

Indeed, it might be of interest that student loan debt now exceeds credit card debt in the U.S.

 

[henrygeorge]

Though I don't think having states pay for higher ed solves the issue any better. I actually like that states have pulled back, or at least haven't increased higher ed budgets to rise with the cost of tuition.

As long as someone who isn't the student fronting the bill, there won't be cost control.

 

[smittytabb]

Though I don't think having states pay for higher ed solves the issue any better. I actually like that states have pulled back, or at least haven't increased higher ed budgets to rise with the cost of tuition.

As long as someone who isn't the student fronting the bill, there won't be cost control.

I completely disagree. It just is not that simple. Higher education has been democratized so that more can afford to go.

 

[henrygeorge]

What incentive do colleges have to control cost if the student isn't shopping around for what they can afford?

I'm open to having my mind changed.

 

[PurpleSquirrel]

First of all, it needs to be mentioned that student loans are the one kind that are not dischargeable in bankruptcy. Putting pressure on colleges to reign in costs as a strategy does not take into account the fact that the states have defunded their public universities at staggering rates over the last quarter century and especially in the past decade. Costs that used to be paid for by the states are being passed along to the students. Most "public" universities charge so much because they are hardly public anymore.

Smitty,
Recently, NY Times published an article analyzing the inflation in costs for higher education. What they found is the huge increase is not due to increase in teaching staff's salaries. The salaries for professors (tenured and non tenured) didn't go up drastically. The huge cost was due to administrative staff and amenities constructed by colleges. They found that administrative staff went by 400% in a span of 20 or 25 years.

 

[smittytabb]

Smitty,
Recently, NY Times published an article analyzing the inflation in costs for higher education. What they found is the huge increase is not due to increase in teaching staff's salaries. The salaries for professors (tenured and non tenured) didn't go up drastically. The huge cost was due to administrative staff and amenities constructed by colleges. They found that administrative staff went by 400% in a span of 20 or 25 years.

No doubt. Indeed the situation on most campuses today involves most courses being taught by adjuncts, not tenure track. Indeed it is the corporatization of the university with a top heavy administration and the casualization of labor among the teaching ranks that has led to a complete upheaval in the way the university functions.

 

[smittytabb]

What incentive do colleges have to control cost if the student isn't shopping around for what they can afford?

I'm open to having my mind changed.

You don't think students "shop around"? Most students and families cannot afford ANY of the schools. Only the very wealthy can afford to pay tuition to most four year schools without some kind of loan or aid. Community college is the best bargain out there at the moment and I would love to see a plan to lower those costs even more.

 

[henrygeorge]

No, I don't think students shop around. And I don't just mean picking a 4 year school. Determining if school is even right for them, or that type of school. Highschoolers don't have experience to make these decisions. Guidance counselors don't either.

Cobbling together what you think you might want to do in 4-5 years, picking schools A or B, it's all a complete crapshoot for most. A decision that has the heaviest implications. Let's not make it easier and misalign cost incentives by throwing government money at the problem.

Government money doesn't reduce tuition or produce a better product.

 

[jmw]

1) Someone with a lot of clout needs to come forward and make the bold argument that college is not worth it for many at today's prices outside of certain majors such as engineering and health professions. For some, going to any college at any price is probably a mistake. IMHO, college is not worth it unless you are very picky about your major. Student loan disclosures are better than what was required in the 1990s, but they need to point out how much salary you need to make and how much your average salary will be after graduating in your major. This way, you'd know you will be $750 in the hole every month for two decades if you choose to major in art at Art Institute. Better yet, loans with those crappy numbers should never be taxpayer financed. Your choice of major should determine the amount of financial aid.

2) On the government employees are losers idea: Yeah, you're right. Many of you have traveled the world and see people with menial jobs. These people will never become rocket scientists, builders, or even graduate from high school no matter how hard they try. They will be unskilled for life. We can dump them in the street with no jobs (the US/UK/Australia way), or we can give them a low paying menial job with benefits. No private sector employer is going to hire these folks, so that leaves the government.

Mario Cuomo 1984 - ""We believe in encouraging the talented," Cuomo said, “but we believe that while survival of the fittest may be a good working description of the process of evolution, a government of humans should elevate itself to a higher order.... Our government should be able to rise to the level where it can fill the gaps that are left by chance or by a wisdom we don't fully understand.”

vs.

Elizabeth Warren 2012 - "Warren said: “I’m here tonight to talk about hardworking people; people who get up early, stay up late, cook dinner and help out with homework; people who can be counted on to help their kids, their parents, their neighbors, and the lady down the street whose car broke down; people who work their hearts out but are up against a hard truth -- the game is rigged against them.”
(which implies that if the game wasn't rigged, everyone would be able to succeed which I think is ludicrous.)

 

[Matt]

I do agree that college inflation is ridiculous, but at the same time, they are only able to do this because of the private sector. Interestingly (to me) I think the STEM subjects that are being lauded in this thread over the arts are the easiest to cut the cost of. It's very easy to take these into a much wider, cheaper platform that it would be to take the arts.

So I propose we accept MOOC learning as viable, since these topics can be tested in a standardized manner, drop spending on these to instead support a much cheaper system, and focus money on teaching the arts, which require a different sort of education, one that is harder to codify.

 

[Alex1432]

First of all, it needs to be mentioned that student loans are the one kind that are not dischargeable in bankruptcy. Putting pressure on colleges to reign in costs as a strategy does not take into account the fact that the states have defunded their public universities at staggering rates over the last quarter century and especially in the past decade. Costs that used to be paid for by the states are being passed along to the students. Most "public" universities charge so much because they are hardly public anymore.

Indeed, it might be of interest that student loan debt now exceeds credit card debt in the U.S.

I understand that college budgets have been cut but I think that because an 18 year old can borrow any amount it encourages spending. Why not purchase a new research building just raise tuition by a thousand dollars to cover it. Few perspective students wouldn't go to a university because tuition went up by 1k since they can just borrow it. However the university wouldn't be so quick to raise tuition if they knew that banks wouldn't loan 26k but only 25k to students.

 

[MickiSue]

(Shaking head.) The reality is that none of us here has an inside track into any of this. Someone who works as a contractor, and has relatives who work for the gov't is not an expert, no matter what he thinks. LOL, the three relatives that I have who work or have worked for the government (one is my son, BTW) were all honors graduates. That must mean that government employees are brilliant, right?

All the rest; just as much opinion. The deck IS stacked against the skilled laborer, the office employee, the fast food worker. Upper management in most businesses is compensated far, far beyond their actual contributions to the bottom line, while lower level employees receive wages at or below the poverty line. At that level of income, it doesn't matter whether or not you or your child is brilliant; the only way that you can get to college is with loans or grants. And, because of the pyramidal nature of the business model, only a handful of the population, no matter their education, can expect to make large enough incomes to send their own children to college without the use of loans and grants for the next generation.

The idea, as well, that only STEM majors are worthy of the cost of an education is appalling to me. My degree is in philosophy. I also worked as an RN for years. But the BA meant that I learned to think. I learned to understand what logic is, what illogical beliefs look and sound like, and that is not necessarily widespread among the tech and math people I know.

 

[henrygeorge]

@wasabirobot, if you have something to add, let's hear it. Words speak louder, and inform better than dislikes.

@MickiSue Government employee incompetence is the rule, not the exception. You will pass my experiences off as anecdotal, but that doesn't mean I'm wrong. I agree that the deck is stacked against the poor.
But going back to the original topic, throwing money at universities not only won't fix educational inequality, but it won't bring down college cost. How would you address it?

 

[MickiSue]

HG: you are absolutely entitled to your opinion. But yours is no more valid than mine. Unless you have data from an objective source to demonstrate your opinion, that's all it is.

...See what a liberal arts education can do? That's called using logic to counter emotional arguments.

 

[henrygeorge]

Yes, it helps obfuscate the real debate.

 

[MickiSue]

Yup. Claiming that government employees are incompetent does take away from discussion of the value of evening out the cost of a college education.

 

[henrygeorge]

That line of discussion came from one of Matt's blog comments. It has no bearing on the original debate that you ignore.

Going back to the original topic, throwing money at universities not only won't fix educational inequality, but it won't bring down college cost. How would you address it?

 

[BoonDR]

Henry, seeing as you are a contractor, you seem to be bashing the very teat you are sucking off of. I could go on to no anecdotal end about the scammer, useless, overpriced contractors who only got a bid because they greased someone's pocket, then raised the costs when they can't meet the obligations of their contract, and a project is half done. Far more money more money is wasted on contractors who in turn hire that "incompetence filled" middle and upper management when they retire. Contractors, run mostly by "incompetence filled" former management, are a large part of the problem. If you can't accept that you are being intentionally obtuse.




Back to the issue at hand, the "value proposition" of a college education is quickly being negated by the obscene debt that is required to obtain it. I am hardly the expert on this subject because my only college credits come from an endless battery of free DANTES tests taken while bored overseas in the Marine Corps, but I have seen to many friends and family members get in to an endless cycle of debt from student loans which was hatched when they were too naive to realize the scope of it. All the while being preached to about how a college education was the greatest thing since indoor plumbing.

I took the drastic step of giving my 2 youngest siblings interest free loans to prevent them from being pulled into that paralyzing debt cycle. They can pay it back when they get established.

 

[henrygeorge]

My personal world view is that land should not be privately titled as it currently is, but only leased from the public. It's our right as humans to inherit the Earth from our forebears, and leave it in better condition for our heirs. Taken full scope, this means an end to the current globalized economy that has crippled environmental systems' ability to regenerate. With an appropriate Land Value Tax, as my namesake Henry George surmised in Progress and Poverty, we should all be able to afford land to live and prosper on.

The government contracting world is a complete sham. Unfortunately, I needed a job to pay off a mountain of debt. I don't see the general public waking up to the fact that the wool's been pulled over their eyes.

 

[Mtshastajane]

Another (non-adjusted for inflation)two cents that is "anecdotal"...

I just went through two hiring waves in the government sector and can tell you that the public interest loan forgiveness program has a large impact on the quality, quantity and caliber of the candidate pool, compared to a time when we didn't have that program available.

The applicants that I see have large student loan debts and a demonstrated commitment to low income work in the public sector--they are trading 10 years of their prime earning lives; their contemporaries literally make two to three times the salary and the work they do is not any more (and some might argue quite less) demanding in terms of hours worked and stress endured. These aren't people choosing a quick fix to get out of their student debt.

But the fact remains that this, and other flavors of loan forgiveness, are the bandaids trying to treat the larger problem of the obscene escalation in the costs of "higher education." Exchanging volleys about the relative incompetence of the government workforce doesn't address the underlying issue.

 

[Franklin's Dad]

Giving this thread a much-needed bump, because despite some of the political comments, this article is hugely informative and has helped my wife and me a great deal.

My wife finished her Masters Degree in Speech Language Pathology in May 2015 and has been working as an SLP for a non-profit organization since graduation. She has about $150k in government student loan debt, but thanks to income-based repayment and PSLF, she is going to pay the minimum for 10 years and then have her loans wiped out (as long as she stays working in the public sector). Needless to say, that is going to save us a ton of money.

What's interesting is that the income-based repayment allows you to "game" the system by "artificially" reducing your AGI, such as by funding deductible retirement accounts. Because the borrower only has to pay back 10% of their annual discretionary income, it means that every contribution into a deductible retirement account provides an automatic 10% ROI, because it will save us that much in student loan payments in the following year.

On the flip side, for every dollar my wife earns, she automatically has to take 10% off the top and throw it into the "abyss" that is her massive student loan debt. And I say it like that because we're not actually trying to pay the thing off. On the contrary, we're trying to pay as little as possible over the next 10 years, because after that, the debt will be gone.

Unless my wife gets a too-good-to-refuse offer to go into private practice, thereby foregoing her PSLF. Then the math gets a whole lot more complicated.