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Thread: Timer to seriously 'Re-Think' US Student Loans

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    Default Timer to seriously 'Re-Think' US Student Loans

    This afternoon it was announced that an Executive Order has been signed establishing a 'loan forgiveness' policy in regard to gov't guaranteed student loans. This leads to the necessity of totally re-thinking the economics of a gov't guaranteed student loan financed college degree.

    One provision of the new program is obviously 'loan forgiveness'. Generally speaking, the new order mandates that outstanding student loan balances will be forgiven ( i.e. deemed paid in full ) after 20 years. Specifically, student loans held by gov't employees will be forgiven after 10 years.

    Another provision is a monthly payment ceiling of 10% of the graduate's actual 'disposable' income.

    Putting these two together, the rough numbers might look something like this for a bachelor's degree graduate with $100,000 in student loans ...

    - The 'normal' monthly payment, at today's 6.8% interest rate over a 10 year term, would be $1151 per month

    - However, assuming that the graduate can only find a job paying $3,000 per month, and after subtracting $1,500 per month of 'necessary' expenses, the actual monthly payment now required would only be $150 per month.

    - with a ~$1000 per month 'shortfall' in repayments, the original $100,000 loan balance would increase by roughly $1000 per month despite the $150 monthly 'capped' payments being made ... meaning that after 20 years the total outstanding student loan balance would be $244,000 ( actually even higher due to compound interest charges )

    - however, this no longer matters, because after 20 years worth of $150 per month payments are made, the $244,000 ( or whatever ) remaining student loan principal will be forgiven ( actually, paid for by US taxpayers )

    - in reality, the actual 'out of pocket' cost of the $100,000 education winds up being 240 months * $150 = $36,000 !!!

    If that's not a good enough deal, if the graduate can land a job with a gov't agency, state college etc. such that the 10 year forgiveness period applies, actual 'out of pocket' cost of the $100,000 education winds up being 120 months * $150 = $18,000


    However, there are several caveats to this equation ...

    - if the graduate has higher earnings, with 'necessary' expenditures fixed at $1500 per month ( or whatever ), every additional dollar of earnings means an extra 10 cents must be paid toward student loans under the 10% 'cap' ( up to the full amount of the regular payment ). This translates into more of the student loan balance being paid down, thus fewer dollars of outstanding balance to be forgiven after 10-20 years.

    - Given that the additional income is fully taxable at progressively higher tax rates, this may turn out to be a strong dis-incentive for increased earnings since one of every 2 additional pre-tax dollars earned may wind up being channeled toward both additional tax payments and toward higher student loan payments ( with the only 'paper' difference being a smaller outstanding student loan balance to be forgiven after 10-20 years, which won't actually matter at all to the graduate just to US taxpayers ).

    - early discussions regarding this 'loan forgiveness' program attempted to set lifetime limits on the amount of student loan debt which will be forgiven ... with a figure being kicked around in the $54,000 per student ballpark. If this provision is enacted, it will again change the math significantly ... potentially resulting in high balance low income graduates having negative amortization based student loan payments continuing until the day they die !!!
    Last edited by Melonie; 06-09-2014 at 12:51 PM.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    This fixes the problem? College expenses have tripled in a generation due to readily available federal funds and colleges that raise the cost of an education with out first asking if it provides any value. So those that went to school for an education that is marketable, i.e .usable in the real world, will get to pay their loans in full, while those that partied and took basketweaving will have their loans paid for / forgiven? Obama's answer to why decent jobs are limited / underpaid and doesn't encourage responsible 'education consumption'.

    Am I the only one that thinks this perpetuates the problem?
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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    ^^^ all I can really say in response is that today Fox News had a guest who noted that student loan debt now amounts to 10% of all outstanding US private debt. Additionally, all money borrowed via student loans is spent almost immediately ... effectively paying for college professors' paychecks, for IPads, for beers and burgers, etc. ... meaning that it directly contributes to current year US GDP. However, I doubt that anyone has yet done the math on the effects on US GDP 10+ years down the road, when billions of dollars worth of annual student loan 'forgiveness' costs will start hitting the US federal budget.

    I posted this news blurb because of the 'personal' advantages the program appears to offer ... which as you say effectively favors lower pay rate lower 'demand' college majors, which especially favors majors which involve gov't employment thus eligibility for student loan forgiveness after 'only' 10 years, and which arguably excludes high demand high earning STEM majors. After all, if attending a middle of the road public college, versus attending a top rated college, doesn't actually involve any 'real world' difference in actual out-of-pocket costs to the graduate ( only a difference in outstanding student loan balance at the point the loan is forgiven ), then why would a student choose the public college ? And if choosing a high paying STEM major translates into the graduate also being required to pay an extra $500-$1000 per month ( in after-tax dollars, thus $800-$1600 a month in pre-tax dollars ) toward student loan payments versus choosing a major the student actually 'wants' to study ( with lower earnings, but also lower taxes and much lower student loan payments thanks to the 10% 'cap' ), why would the student choose the STEM major ?

    Given the number of dancers and camgirls who are also college students, or who are considering becoming college students, today's new student loan forgiveness order represents a significant change to the 'decision making' formula.
    Last edited by Melonie; 06-09-2014 at 01:45 PM.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    This is one of those topics that is intrinsically "political". I think Melonie has taken the best approach by focusing on the practical i.e. the new forgiveness policy should be part of the decision making process in deciding whether or not to go to college and how to "pay" for it.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    I don't believe in college. College and college loans are a scam.
    "Dancing tables, making deals with devils like a drunk beauty queen"

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    You're right Melonie. I have student loan debt and a STEM degree but have no incentive to take a top paying job that I loathe just to pay 30,000 a year in taxes and 24,000 a year in loan repayments.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Quote Originally Posted by ScarletKitten View Post
    I don't believe in college. College and college loans are a scam.
    The COST of college and college loans might be fairly called "scams". Once again I have to tiptoe around the political minefields and obstacles but an argument has been made that a BIG reason for the high cost of college IS all the Federal and state money sloshing around the system. Tuition , room and board and various fees have all gone way up. Far , far beyond the inflation rate.

    That being said, scam or not , if you plan on being a doctor , lawyer , CPA , LPE ( engineer ) , teacher etc. you need a college degree.

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    Question Re: Timer to seriously 'Re-Think' US Student Loans

    You're right Melonie. I have student loan debt and a STEM degree but have no incentive to take a top paying job that I loathe just to pay 30,000 a year in taxes and 24,000 a year in loan repayments.
    Again tip-toe-ing carefully, this is the essential 'real world' result of this new executive order re US student loans. If you earn a high amount of money, you will still be required to make ( most of ) your required student loan payments, on top of being assessed a higher effective tax rate ( based on higher income ). If you earn a relatively small amount of money in comparison, US taxpayers will wind up making the majority of your required student loan payments ( via forgiveness ), and your effective tax rate will remain low. Additionally, if you earn a relatively small amount of money ( under $46,000 actually ) you also remain eligible for various other US taxpayer subsidies such as reduced health insurance premium costs.

    So yes there will now be an entirely new 'equation' regarding 'real world' standard of living comparisons for STEM degrees versus other degrees that are in less demand / pay significantly less.


    The COST of college and college loans might be fairly called "scams".
    This 'equation' will now change as well ... given that the 'official' cost of college tuition will now be 'divorced' from the amount of college loan repayments a given person is actually required to make out of their own pocket. This will also change the rationale when deciding whether to work during college to ( partially ) avoid student loan debt, versus not working during college and running up large student loan debts on 'paper', but student loan debts which you yourself will not actually be required to repay in full !!!

    Or is it better still to work as much as possible during college, but to invest the money ( thus resulting in future capital gains 11-21 years down the road when the additional income no longer affects the size of required monthly student loan repayments which are limited to 10% of actual 'disposable' income ) ... while covering your tuition costs via as large of a student loan as you can get approved for ( much of which will eventually be forgiven rather than repaid ) ???


    if you plan on being a doctor , lawyer , CPA , LPE ( engineer ) , teacher etc. you need a college degree
    Yes, but ... under the new executive order, the actual out of pocket cost of obtaining these degrees now varies widely .... because doctors, lawyers, teachers etc. who take gov't jobs will have their student loans forgiven after 10 years, while private practice doctors, lawyers, private school teachers, etc. will have to continue making student loan payments for 20 years.

    Also, I would be extremely wary of pursuing any of these degrees until the matter of a potential 'lifetime cap' on total student loan forgiveness amount is decided. With a $54,000 figure being tossed around, lower tuition cost state colleges may come in under the 'cap' whereas private colleges would not !!!


    I don't believe in college. College and college loans are a scam.
    The only problem with this is the distinct possibility that a college degree will become the new 'high school diploma'. In the present economy, it is already well documented that a whole bunch of jobs that don't actually require a college degree for qualification purposes are now held by college graduates. If the new executive order's loan forgiveness provisions lead to yet more Americans obtaining degrees because they won't actually have to pay the 'full price' of tuition, logically speaking this will in turn lead to yet more graduates holding low demand degrees ... thus more competition for jobs that don't really require degrees. If the number of future low skill jobs can be met with the number of unemployed future college graduates, those with only a high school diploma may get stepped over in the same way that those without a high school diploma are stepped over today.
    Last edited by Melonie; 06-11-2014 at 09:15 AM.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    I'm jus sayin' - I would rather dance, save up, invest, and eventually start my own business. No college needed. I don't need to "buy" knowledge. I don't believe in the concept of having to pay for knowledge. It's fucked. Knowledge should be free and open-sourced, not controlled and monopolized. And paying interest rates on student loans is criminal. You go to school to be a doctor, go through 8+ years of college, get into thousands of dollars in debt... Then you have to work the rest of your life just to pay off that debt and live a decent life. I just don't see any logic to that. Besides, what if you change your mind after all that schooling and all that time and expense, you go be a doctor, but then 2 years later, realize you absolutely hate it because you are a slave, on call 24/7, no time for family, etc. But you're stuck, because you're in student debt and you've made this life commitment. End result: a miserable, dead-inside doctor who is stuck in her job and drowning in student debt.
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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Quote Originally Posted by ScarletKitten View Post
    I don't believe in college. College and college loans are a scam.
    The cost of college is why I opted to stay in PR for a few extra years to do college down there. I got bored and ran out of money (for living expenses), so I joined the military...and finished it while in the navy (online, of course).

    I had said this before and I will say it again: all this "student loan" BS is one of the reasons why I'm so happy that I went to college in Puerto Rico. I paid less for the same: a regionally accredited college (accredited by Middle States), program accredited by ACEJMC, and most books used in the mainland states.





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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    ^^^valid point !!! However, in the final analysis, in either case US taxpayers are 'footing the bill' for the college education. The only real difference is whether US taxpayers wind up paying in full 'up front', versus graduates making 'token' payments for 10-20 years after which US taxpayers wind up paying the 'balance'.


    I would rather dance, save up, invest, and eventually start my own business. No college needed. I don't need to "buy" knowledge. I don't believe in the concept of having to pay for knowledge
    And this gets even better if the dancer is also 'getting paid' while acquiring that knowledge for free from VIP customers who are bankers, brokers, attorneys, politicians etc. !!!


    You go to school to be a doctor, go through 8+ years of college, get into thousands of dollars in debt... Then you have to work the rest of your life just to pay off that debt and live a decent life. I just don't see any logic to that.
    Indeed this is arguably already true for many high paying STEM professions, i.e. engineers, technicians, financial analysts, etc. Employers expect the 'job' to take precedence over personal matters ... often on a 24/7 basis for certain periods of time at least. And higher income levels means much higher effective tax percentages must be paid out of future earnings, meaning that STEM professionals don't actually 'see' a good portion of their higher earnings vs other less 'demanding' professions. This situation will arguably be made even worse if student loan debt forgiveness 'caps' and/or 10% of disposable income max monthly student loan payments also require STEM graduates to actually pay off a much higher percentage of their total student loan debt out of their own future earnings.
    Last edited by Melonie; 06-15-2014 at 06:07 AM.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Quote Originally Posted by ScarletKitten View Post
    I don't believe in college. College and college loans are a scam.
    IA. Unless you're going for something with a license or a trade-based job like engineering, its pointless really. I learned more from reading a bunch of books and taking notes, than from being in college. I studied what I wanted in school, and the school I went to was decent, but some people just don't learn that way. And it should be free or close to it IMO.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    So we're in danger of having university course costs balloon in Australia too. This article http://www.theguardian.com/money/201...alth-education sounds like where we're heading too, if that happens. A degree becomes a money barrier to keep the underclass from taking rich peoples' jobs.
    Last edited by person; 06-19-2014 at 04:14 AM. Reason: Removed editorialising. Just the facts
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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    ^^^ yes ... but unlike this latest US student loan 'forgiveness' plan, Australian college students will actually be required to repay their student loans !!!

    From a US centric viewpoint, the fact that a future US college graduate will only be required to pay 10% of their income toward student loan payments, combined with the fact that any remaining unpaid student loan balances will be 'forgiven' after 10-20 years, will mean that ... in terms of actual money out of their own pockets ... American students won't be paying a higher price to attend Harvard or Princeton than to attend a state college.

    However, a big 'joker in the deck' will be possible lifetime 'caps' being imposed regarding the maximum loan forgiveness amount. If those 'caps' are enacted at the $50-60k level being discussed, then Harvard and Princeton will remain the 'province' of the rich elite !!! And, in turn, the 'two tier' educational system will be exacerbated ... possibly leading to the scenario you ( and your author ) point out, with Harvard and Princeton grads actually get hired for high paying corporate career jobs, while state college graduates get to compete for Starbucks barista job openings.
    Last edited by Melonie; 06-19-2014 at 08:15 AM.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Quote Originally Posted by person View Post
    A degree becomes a money barrier to keep the underclass from taking rich peoples' jobs.
    TOTALLY agree. I don't understand why other people can't see this. And I don't understand why the world thinks EVERYONE needs a degree. Do people even really think that? Why are certificates or professional skills (carpenter, plumber, construction, etc) not considered acceptable?

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Colleges are definitely a scam. Do some reading on part time faculty and it just BLOWS your mind. It made so many things make sense as to why I was paying thousands a semester for tuition and receiving education that in my opinion was often worse in quality than I received in a good public high school. I had a lot of professors that could not answer questions I asked them about the trade I studied, or would only refer me to the textbook or some other source instead of actually TEACHING. But hey, you can't blame them, they get paid a measly few k per class(around 3-4k is typical I hear, for 1 one semester class (10 hours a week ish), for how much is expected of one as a professor I would probably slack off too for that amount of pay. Because the universities list them as "part time" (though it is not uncommon for them to work full-time hours, a lot of my profs taught 4-5 classes a semester), they get no health benefits either. YET the university charges the students 1kish each per class...50 students a class, thats 50k in revenue for the school!!! Even taking into consideration costs for the building maintenance, utilities, cleaning, equipment, staff, etc, that is a pretty steeep markup. I'm pretty sure it doesn't cost the university $5000 a month to run one class, let alone well over 10k which is what they bring in...talk about mark up eh!

    As for this new student loan business, I'm torn between thinking it's a fair policy for people because tuition is so crazy high now combined with the bad economy it seems unrealistic to expect people to pay those loans...but at the same time where is the government getting this money to pay them instead?
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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Quote Originally Posted by Jay12 View Post
    The cost of college is why I opted to stay in PR for a few extra years to do college down there. I got bored and ran out of money (for living expenses), so I joined the military...and finished it while in the navy (online, of course).

    I had said this before and I will say it again: all this "student loan" BS is one of the reasons why I'm so happy that I went to college in Puerto Rico. I paid less for the same: a regionally accredited college (accredited by Middle States), program accredited by ACEJMC, and most books used in the mainland states.
    Exactly! If other countries can manage to have affordable or even *gasp* almost-free upper education, as a first world country, why can't we? It's absolutely ridiculous, imho.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    I'm torn between thinking it's a fair policy for people because tuition is so crazy high now combined with the bad economy it seems unrealistic to expect people to pay those loans...but at the same time where is the government getting this money to pay them instead?
    If other countries can manage to have affordable or even *gasp* almost-free upper education, as a first world country, why can't we?

    Tiptoeing around this answer as well ... there are three possibilities ...

    #1 raise the current ~30% income tax rate on dancers and camgirls to the ~40% that is fairly common in western European countries.

    #2 print the money out of thin air, with the consequences of raising the prices by just about everything by 20% ( or whatever ), while at the same time 'confiscating' the same 20% from the value of Americans' savings and investments ( in the form of lost purchasing power )

    #3 export a 'state owned' commodity like oil, natural gas, minerals etc. taken from gov't lands, and use the proceeds of the sales for funding

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    We need to re think tuition at public universities. Even after adjusting for inflation, tuition is 10 times what it was when I was in undergrad school. One semester now costs more than my entire education.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    ^^^ well, under the new 'student loan debt forgiveness' directive and '10% of disposable income' student loan payment caps, the actual net cost of future tuition at public universities will be nearly the same as the actual net cost of future tuition at prestigious private colleges !!! Granted that the 'stated' tuition costs will be vastly different, and granted that the 'stated' amount of total student loan debt will be vastly different, but the actual amount of money which must be (re)paid by the student won't be all that different.

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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    Quote Originally Posted by Melonie View Post
    print the money out of thin air, with the consequences of raising the prices by just about everything by 20% ( or whatever ), while at the same time 'confiscating' the same 20% from the value of Americans' savings and investments ( in the form of lost purchasing power )
    It's funny that you say this, because that is how the entire monetary system operates. The money everyone uses is printed "out of thin air." Fractional reserve banking causes money to be created out of nothing by charging interest on loans, for example. Since the cost of interest is neither a good or a service, it goes against the inherent rules of economics, yet ironically it is the very foundation of our economy!

    We were all fucked since the Federal Reserve Act of 1913. That was the death of the U.S. economy.
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    Default Re: Timer to seriously 'Re-Think' US Student Loans

    The money everyone uses is printed "out of thin air." Fractional reserve banking causes money to be created out of nothing by charging interest on loans, for example. Since the cost of interest is neither a good or a service, it goes against the inherent rules of economics, yet ironically it is the very foundation of our economy!
    Perhaps without realizing it, you have actually hit on one of the arguable reasons that student loans have become nearly 100% gov't controlled in recent years. Indeed modern economies utilizing 'fiat' currencies depend on new loans to 'create additional money out of thin air'. With the persistent poor economy, persistent high numbers of Americans without decent full time jobs, etc. the 'old normal' channels for inserting new money into the economy via mortgages, standard auto loans, business loans etc. are nowhere near as active ... because there are simply fewer businesses willing to risk expansion / new equipment, and there are simply fewer individuals who can qualify for mortgages and standard auto loans.

    Inserting newly printed money into the economy without using the loan mechanism has historically been highly inflationary ... as well as having a tendency for the newly printed money to flow disproportionatly to the 'rich' investor class. Thus easy approval gov't guaranteed student loans now arguably fill the same role in the 'new economy' as mortgages and standard auto loans used to fill ... i.e. 'absorbing' newly printed money without causing major disruptions in the price of retail items.

    Also, student loans offer the 'powers that be' another significant advantage in regard to pumping into the economy newly printed money without a corresponding incidence of money being 'taken out' of the economy. Where 'subprime' auto loans are concerned, it may take anywhere from a few months to a year for a defaulting subprime borrower to be re-po'd and forced into bankruptcy ( thus removing all of the newly printed money associated with their subprime auto loan, and more, from the economy via loss write-offs ). Where 'subprime' mortgages are concerned, it may take anywhere from 18 months to 4-5 years before a defaulting subprime borrower is foreclosed on and forced into bankruptcy ( thus removing all of the newly printed money associated with subprime mortgage loans via loss write-offs as well ).

    But where student loans are concerned, it is extremely difficult to discharge these via bankruptcy - thus the newly printed loan money is 'never' removed from the economy. And this now becomes even more the case given the new 10% of 'disposable income ' cap on monthly student loan payments, which officially avoids such student loans from ever becoming delinquent. In point of fact, said delinquent student loan money IS eventually removed from the economy, but via a different 'pocket' - i.e. taxpayers being forced to pay out on delinquent student loans they have guaranteed. But that 'day of reckoning' has now been shifted 10-20 years into the future thanks to new student loan forgiveness rules - meaning that it will be a significant problem for our taxpayer children who are already in a position of having to 'make good' on over 1 trillion dollars worth of gov't backed student loans, with several additional trillions being added over the course of the next 10-20 years !
    Last edited by Melonie; 07-21-2014 at 09:20 AM.

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