Posts tagged ‘Income Based Repayment’

March 25, 2015

Tips for older student loan borrowers

by Grace

How can older Americans sidestep student debt trouble?

With the need to retool career skills or pursue new vocations, more Americans are taking on loans to finance education later in life — for new degrees, certificates or course work called continuing education units to improve knowledge in demanding professions.

According to the Government Accountability Office, student debt held by those 65 and older has risen significantly in recent years, growing to about $18.2 billion in 2013, from about $2.8 billion in 2005. While it’s not known how much of that is the result of college loans co-signed for children or grandchildren, a good portion is for continuing education. Before the last recession, the working-age population pursuing “re-entry” courses jumped 27 percent over a decade, according to the Education Department.

The New York Times’ advice for senior citizens seems to be the same that younger student loan borrowers should follow.

… “Do a cost-benefit analysis. How will it maximize my earnings? Will I be able to service the debt?”…

“Evaluate your postgraduate payment plan,” Mr. Weber suggests. “What will your salary be after graduation? Will there be an immediate payoff in terms of a higher salary?”…

You can overpay for a degree or certificate that will yield little career advancement or salary increases. Mr. Weber warns against for-profit colleges that market aggressively and says their programs and graduation rates should be carefully vetted.

The federal government offers some flexibility in paying back loans, including income-based repayment (IBR).

But what happens after you’re out of school with continuing education debt if you can’t increase your income or don’t start earning money right away?

If you have federal loans, you can qualify for a break from payments until you can start paying them down. See the Education Department’s federal student aid website to explore the options.

Another option is income-based repayment, available only for federally guaranteed loans. Private loans are the least flexible in terms of repayment.

Retired borrowers may be more likely to qualify for IBR.

“If you’re at or near retirement, your income may be lower, which may affect your ability to repay your loan,” she said. “There is income-based repayment available, which can make repayment more manageable, but can also extend the repayment period, leading to more interest accrual. It’s something to keep in mind as you plan for the future.”

Since assets are not counted in determining eligibility for IBR and similar debt relief programs, senior citizens with substantial home equity and retirement accounts may find it easy to qualify.

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John F. Waskimarch, “Managing Student Loan Debt as an Older Adult”, New York Times, March 19, 2015.

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March 19, 2015

New ‘Student Aid Bill of Rights’ makes it easier to pay back student loans

by Grace

The Obama administration’s new “Student Aid Bill of Rights” will “simplify the process to apply for income-based repayment”, a move likely to shift more of the burden for paying back student loans from borrowers to taxpayers.  That is just one of the new benefits for the 40 million borrowers holding $1.3 trillion in student debt.

President Barack Obama announced a new “Student Aid Bill of Rights” Tuesday, directing the Department of Education and other federal agencies to undertake initiatives in three areas to help improve affordability for the estimated 40 million borrowers with federal loans. “We’re going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you’re falling behind, help you get back in good standing with reasonable fees on a reasonable timeline,” Obama said during his speech at the Georgia Institute of Technology Tuesday afternoon.

This is the government’s rather magnanimous promise:

A Student Aid Bill of Rights

  1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
  2. Every student should be able to access the resources needed to pay for college.
  3. Every borrower has the right to an affordable repayment plan.
  4. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Summary of changes:

1. Create a centralized website that makes it easy to file complaints and to see all your student loans in one place….

2. Try having federal employees collecting debts instead of private contractors…

3. Make it easier for borrowers who become disabled to get their student loans discharged….

4. Ensure that the private debt collectors hired by the Department of Education apply prepayments first to loans with the highest interest rates, unless the borrower requests a different allocation.

5. Make it easier for students to get IRS information to qualify for income-based student loan repayment.

6. Clarify the rules under which students who declare bankruptcy can get their student loans reduced or eliminated….

While I disagree with some of the federal student loan program’s fundamental policies, it’s nice to see the government take the initiative for more clarity and transparency.

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Kelli B. Grant, “Student loan initiatives could benefit 40M borrowers”, CNBC, March 10, 2015.

Kim Clark, “6 Ways the New ‘Student Aid Bill Of Rights’ Will Help Borrowers”, Money, March 10, 2015.

March 10, 2015

Which are the ‘altruistic’ professions that deserve special treatment?

by Grace

High school history teacher Kate LeSueur wrote that she wishes to “enlighten” us “on the discrepancy between the price of my education and the salary of an altruistic career such that of an educator”.

She compared a master’s in education with a master’s of business administration, pointing out that individuals with MBA degrees typically enjoy substantially higher salaries and lower student debt levels.

Why is it that we both went to school for the same amount of time and both earned master’s, yet my degree costs more and I get paid significantly less? I am not arguing that I deserve $90,000 a year — only that the cost of my education should be comparable to my salary. Society expects us to accept a fate guaranteeing small paychecks and large student loan bills. I am writing to say, America, we aren’t going to accept it much longer.

I find it hard to accept the rather sweeping statement that teaching is an altruistic career.  Although teacher unions have long maintained the message that all their efforts are “for the children”, I don’t buy it.  I’m not claiming that teaching is rampant with evil, money-hungry people, but neither are most other professions.  A typical MBA working to keep his employer profitable is no less deserving of special adoration than is a typical teacher.  And many people who earn generous salaries show their altruism in other ways, such as donating their time and money to worthy causes.

Furthermore, it’s troubling when the government gets in the business of deciding which jobs deserve special treatment, like the most generous Income Based Repayment benefits that are reserved for government and nonprofit employees.  George Leef points out the consequences of this politicized meddling.

… Whenever the government gets involved in an activity that is not properly any of its business, we get the infamous trio: waste, fraud, abuse, and then the politicians feel the need to meddle still more in an effort to solve the problems they’ve created. The federal student-aid programs are a perfect illustration. Repayment of loans is being politicized, with easy terms for students provided they make the “right” choices in employment. That will only further misallocate resources and help to keep the higher-education bubble inflated.

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Kate LeSueur, “The price of a good education, $80K and counting”, cleveland.com, March 01, 2015.

February 25, 2015

Are we seeing a ‘big quasi-bailout’ for student loan borrowers?

by Grace

The Obama administration projects that the increased use of student loan forgiveness programs will cost taxpayers $22 billion next year.

… Primarily because of the recent growth in enrollment in the program, projected long-term revenues from the federal direct student loan portfolio were reduced by almost $22 billion compared with the best guess from the previous year….

This looks like ‘a big quasi-bailout’

That’s a big quasi-bailout, increasing the deficit nearly 5 percent. The White House budget office was unaware of any larger re-estimates since the current scoring rules for credit programs went into effect in 1992. As a January Politico Magazine feature on the government’s unusual credit portfolio reported, the Federal Housing Administration has stuck more than $75 billion worth of similar re-estimates onto Uncle Sam’s tab over the last two decades, most of them after the recent housing bust led to a cascade of FHA-backed mortgage defaults. But it’s never had a one-year shortfall quite as drastic as this.

Borrowers are made out to be innocent victims of “circumstances beyond their control”.

Regardless of which accounting method is used, the federal government is expecting to write off billions of dollars in future student loan balances under the program in order to reward public service employment and protect borrowers from economic circumstances beyond their control.

It’s not as if a student loan bailout should come as a surprise.  Here’s a question from 2011.

Is a student loan bailout inevitable?

20110913.COCCollegeLoanGrowth

Seeing the trend lines, Mark Gimein wrote this four years ago.

Eventually both private lenders and the government will be on the hook. The government has already moved to ease some loan terms. It will need to find more, especially for those snookered into paying for degrees worthless in the job market. The private loans, meanwhile, will simply blow up. We may as well start figuring now how graduates, taxpayers, lenders, and schools will split the bill.

Taxpayers just took on $22 billion, and there’s probably more to come.

Related:  “Politicized federal student loan program bails out ‘deadbeats’”

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Kevin Carey, “Flip Side of Reducing Student Debt Is Increasing the Federal Deficit”, New York Times, February 10, 2015.

Michael Grunwald, “The College Loan Bombshell Hidden in the Budget”, Politico,  February 05, 2015.

June 13, 2014

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.

June 11, 2014

President Obama expands student loan forgiveness program

by Grace

President Obama has signed an executive order forgiving repayment for millions of student-loan borrowers.

The president announced Monday the expansion of 2010’s “Pay as You Earn” program that caps some graduates’ repayments at 10% of their monthly discretionary income. The executive order increases eligibility of the program to include those who took out loans before October 2007 or stopped borrowing by October 2011, a move the White House says will expand payment relief to nearly five million people.

Sweetening the pot of loan forgiveness

The federal government offers different repayment plans to help cash-strapped borrowers, including income-based repayments, the graduated repayment program, and forgiveness programs for on-time payments and public-sector employees.

Under many of the plans, low-income borrowers can have their balance canceled after 25 years of on-time payments. The president’s plan moves the forgiveness date to 20 years or 10 years for those in public service jobs.

It’s not likely to boost the economy, which is suffering from the effects of rising student loan amounts.

“It will slightly increase the amount of debt that is forgiven, but it’s not going to be enough to stimulate the economy,” says Kantrowitz. “If the government were to forgo all student loan debt immediately, it would have a 0.4% impact on the GPD. It wouldn’t really move the economy.”

But it my “unintentionally” push college costs higher.

Beth Akers, a fellow in the Brookings Institution’s Brown Center on Education Policy, says the move could also unintentionally push college tuition prices higher.

“The income piece is a necessary safety net for borrowers. It gives security to not be afraid to take on debt to go to college, but the forgiveness part isn’t always necessary. It induces people to borrow more than they need to, which can have a negative impact on college prices.” She says students are still getting a positive return on their college education investment—but too often, people are borrowing more than necessary. “We need to be careful when granting aid to borrowers because it can raise the prices on the front end.”

Joanne Jacobs seems to agree.

The big winners are people who borrowed for graduate school and private colleges, which can keep raising tuition without fear of scaring away students.

Related:  “Federal student loan programs create perverse incentives” (Cost of College)

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Kathryn Buschman Vasel, “Obama Announced Student Loan Changes–What it Means for Borrowers”, FOXBusiness, June 09, 2014.

April 1, 2014

Turbo Tax being used to promote income-based student loan repayment

by Grace

The federal government has begun to use Turbo Tax to promote income-based and other income-dependent college loan repayment programs.

The new push from the Departments of Treasury and Education uses tax time to promote the opportunity for a borrower to have their entire debt repaid after 20 or 25 years. The agencies are partnering with TurboTax, the tax software used by more than 18 million Americans, to advertise the deal….

Turbo Tax users will see information about loan repayment options and a link to the Department of Education website in a section of the program called “My Money Tools.”

They are provided with a link to a calculator that uses tax information, including their adjusted gross income, marital status and household size to determine eligibility for income-based and other income-dependent repayment programs.

The options allow qualified borrowers to lock-in monthly payments that are determined by how much they make, not how much they owe.

This new marketing push coincides with the upcoming introduction of more generous taxpayer subsidies for student borrowers.

Those graduating after 2014 will have the option of applying to an even more generous program Congress passed in 2009 that would set payments at 10 percent of discretionary income for 20 years. After that, the loan is forgiven.

The Turbo Tax promotion comes after the Obama administration and other supporters expressed concern that not enough borrowers were taking advantage of Income Based Repayment (IBR), a student loan forgiveness program.

Kelsey Snell, “Student loan debt deal comes with tax catch”, Politico, 3/26/14.

Related:  Federal student loan programs create perverse incentives (Cost of College)

March 5, 2014

Federal student loan programs create perverse incentives

by Grace

Two problems with college loan forgiveness programs:

1.  They encourage students to choose less-valuable majors, according to George Leef.

.. income-based repayment would lessen or even remove the incentive that students now have to think prospectively about the cost/benefit ratio of college. With income-based repayment in place, the government is in effect telling students, “Relax—if college turns out not to do much to increase your income, you won’t have to dig deep to cover the costs.”

2.  They create “a perverse incentive for students to take out large loans they have no intention of paying back in full”, according to Walter Russell Mead.

… This is particularly true for graduate students, who have no limits on the size of the loans they can take out. As a result, the program has gone from “a safety net for undergraduates [to] a very large tuition assistance program for graduate students.”

Both income-based repayment plans and public service loan forgiveness programs absolve participants from paying back a significant percentage of the money they borrowed.

Mead describes how government policies are “Blowing Air into Debt Bubble”.

Over the past few years, the college cost crisis has evolved from merely an important issue facing parents and students into a serious national problem that could impact the future of the country. Moreover, most government programs designed to address the problem have only made it worse, inflating the bubble by encouraging students to borrow and giving colleges few incentives to lower prices. Federal student loans are the biggest offenders in this regard, but even other, more targeted programs have had this effect.

Related:

November 11, 2013

New rules help struggling student loan borrowers

by Grace

The Education Department has finalized new rules that can help struggling student loan borrowers by imposing stricter requirements on debt collectors.

One problem has been that some creditors have not been disclosing the most favorable payment options in cases where borrowers want to “rehabilitate” loans that are in default.

In its final rules, the Education Department requires that borrowers who want to rehabilitate loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option, meant to help borrowers who have high debt in relation to income, caps a borrower’s monthly payments at 15 percent of his or her monthly income….

In addition, some debt collectors had demanded minimum monthly payments without disclosing more affordable alternatives, even though federal student aid law does not require minimum payments. The rules specify that payments in rehabilitation must not be a required minimum amount.

Rehabilitating a loan makes a borrower eligible for additional student aid.  It is hoped that additional borrowing will be accompanied by serious consideration about how the loans will be paid back.

Q&A on the new student loan rules:

■ When do the new rules go into effect?

Most take effect July 1 of next year. But lenders and schools may carry out some of the rules, like the one on forbearances, right away if they choose.

■ Do these rules apply to private student loans?

No. They apply to loans made or guaranteed by the federal government.

■ What if I don’t think I am being offered a fair repayment plan?

Complaints can be made to the Education Department at http://www.myeddebt.com.

Related:  Not enough borrowers take advantage of Income Based Repayment’s ‘mind-boggling’ generous benefits (Cost of College)

November 5, 2013

Student loan forgiveness for government employees

by Grace

Here’s the plea from a government employee.

I Work for HHS and Want to Get My Student Loans Forgiven

Steve Rhode, the Get Out of Debt Guy, responds in the Huffington Post that the writer may qualify for a loan forgiveness program.

… certain public service employees can get a substantial discharge of their federal student loans under the Public Service Loan Forgiveness Program (PSLFP)….

Many employers qualify as “public service” employers under the PSLFP.

Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes.

A private not-for-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. The organization must not be a labor union or a partisan political organization.

Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, advises college graduates to take advantage of this benefit.

“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.”

Taxpayers are picking up the tab, which can be substantial.

Under the New IBR, a student who owes $70,000 upon graduation would end up paying back only $22,000 if he stayed ten years at a government job with a starting salary of $40,000.  That’s a savings of $143,000 compared to how much that graduate would have paid had he not taken the IBR option.

Related:  Income Based Repayment (IBR) is a ‘moral hazard’ for high-income student loan borrowers (Cost of College)

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