President Obama expands the ‘fat-cat MBA tuition assistance program’

by Grace

President Obama’s executive order to expand student loan forgiveness could be called the “fat-cat MBA tuition assistance program”.

Students who got expensive degrees, even of the type that tend to yield lucrative jobs—like MBAs—stand to gain from these changes. At least, certain ones do.

20140611.COCLoanForgivenessMBA1

Jason Delisle of the New America Foundation calculated a scenario where taxpayers would pay $208,259 to forgive part of an MBA graduate’s student loan.

We have one example of someone who might look similar to an MBA student. He starts out with a starting salary of $90,000 and, by the end of 20 years, is making $243,360. Under the old IBR program, he’ll have paid $409,445 by year 25 and be forgiven $23,892 of his loan balance. Under the new [PAYE] plan, he’ll pay less than half of that, or $202,299, and be forgiven $208,259 by year 20.

Better yet, this MBA graduate could start his career in the public sector, and have his loan balance forgiven after ten years under the Public Service Loan Forgiveness Program (PSLFP).

“If you plan on doing any kind of public service, nonprofit or government work,” said Delisle, “then you should borrow as much money as [your school] will possibly let you.”

Here’s an example of a veterinarian who can get taxpayers to pay off a substantial amount of his student loan.

Consider a vet who earns a salary over the next 20 years that is greater than 75 percent of vets in his age group. Once he accumulates $105,000 in debt while in school, any additional amount he borrows is forgiven under the New Income Based Repayment program after 20 years of payments. He could borrow $150,000, $190,000 or more, but he makes the same monthly and total payments over the next 20 years had he borrowed only $105,000….

Here is the kicker. According to the American Veterinary Medical Association, 70 percent of graduates leave school with more than $105,000 in debt today. And remember, the point at which a vet student stops incurring a cost for borrowing more in federal loans – $105,000 – was calculated for high earning vets, those making more than 75 percent of their peers, not the average.

Sweet deal.

Related:

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Cory Weinberg, “What Obama’s Plan to Lighten Loan Burdens Means For MBAs”, BloombergBusinessweek, June 10, 2014.

Karen Weise, “Grad Students Could Win Big as Obama Slashes Debt Payments”,  BloombergBusinessweek, June 9, 2014.

Jason Delisle & Alex Holt, “Income Based Repayment Is One Sick Puppy”, New America Foundation, August 28, 2013.

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