Biden's Student Loan plan is about to be negotiated into the rules (Please Read)

[Johnny2X2X]

https://www.forbes.com/sites/adamminsky/2021/06/02/what-a-new-income-based-repayment-plan-could-mean-for-student-loan-borrowers/?sh=66c618827043

Unlike forgiveness, this doesn't take an act of Congress, Obama already used the rule process to add different repayment options for borrowers. This is a rules negotiation process that is in the Department of Education and it begins this month.

Changing the PAYE (Pay as You earn) option from 10% of Adjust Gross Income to 5% of AGI less expenses would permanently fix the student loan system. It's what Biden campaigned on and what I expect to get done.

Making the changes to the repayment options like he is trying to do will be more impactful than $10K in forgiveness. And forgiveness isn't a long term solution because the system will remain the same. Changing the PAYE options permanently fixes the system. The numbers make student loan payments totally reasonable for everyone. Make $80K a year? Subtract 1.5 times the poverty rate income and then you pay 5% of that rather than 10% per year. So that's 5% of $63K a year vs 10% that it is now. $3150 vs $6300 or $262.50 a month vs $525 a month. Absolute game changer for people. And total forgiveness after 20 years of making your payments. Student loans go from an extra rent payment to an extra car payment for borrowers. I believe this will get done. This doesn't take an act of Congress, it's just negotiated rules in the Department of Education, Obama used it to create 2 new repayment plans already.

Again, this plan is a permanent fix and won't take Congress at all.

[Haggard Celine]

1. That's awesome!

I hope they do this. It will make a huge difference for so many people.

[Johnny2X2X]

2. Halving payments for all is a huge deal

For all levels of income it's darned near life changing. Making $150K a year is $550 a month vs $1100 a month. Making $40K a year means $100 payments vs $200 a month. It's an absolute game changer for all of the borrowers who owe a lot. And they can even tweak a few things to get them lower. When it becomes available it could mean closer to 60% reduction rather than 50%. So $350 vs $800 a month for some borrowers. Just life changing.

[Hugin]

3. A suitable proposal...

Short of a bunch of banksters taking the huge haircut they so richly deserve. As, this solution still repays them at 100 cents on the dollar. Which as we learned in 2008 is their expectation even though every investment agreement in the known universe has "investments contain risks and you may lose money" printed at the bottom.

I think the Administration was patiently waiting to see if the Legislature was going to address the issue. Due to this sort of thing being in their purse string wheelhouse. Which, they have now seen is completely paralyzed and grid locked with right wing partisanship. It's nice to see a contingency plan was in the works. How refreshing.

I would only add to this plan a huge outreach program for prospective students in how to identify this program and use it vs charging their expenses on a credit card or falling for the faux programs set up to look like this program, but, all of the benefits taken away in the fine print. Which you can bank on emerging. Plenty of precedence for this in the fact a so-called reverse mortgage following the federal guidelines is completely unavailable in the market place. Although, they all claim to be based on the program.

[former9thward]

24. Banks have been out of the student loan business for 10 years.

It is all handled by the federal government. That is the only body taking a "haircut".

[Hugin]

25. It's my understanding that the actual parties generating the loans are private and sometimes the...

schools themselves using financing provided by the Fed at a substantial profit of course.

I've had several dimpled darlings go through the process in the last 10 years. One of them stung very badly by such an arrangement. Ergo, why I don't drive a fancy electric car or have a roof from this millennium.

[former9thward]

26. The Banks make their money upfront as a loan originator.

But after that the interest goes to the federal government and any losses they will have to eat.

[Hugin]

29. I'm not here to argue my use of the word 'bankster'.

The system has been corrupted by the people who sit around all day thinking of ways to make other people's money their money at the greatest possible ROI.

Most of them call themselves 'financiers'.

[mwooldri]

4. I hope this is done for the older FFEL student loans too.

Mine are all "Direct" loans, meaning the Fed holds them. My wife's loans are held by a private company, backed by the government. I'm not sure if some or all of her loans got bought by the government during the 2008 banking crisis but I have repayment options she doesn't. If this is done for both direct, FFEL and other kinds of government backed loans then yeah, game changer. Part of me also wants the government to waive the interest charged on loans going back X years.

[Johnny2X2X]

6. FFEL is going to be included too

This is a total game changer. This is what Biden campaigned on. People got distracted by the shiny object of loan forgiveness, but Biden's plan was always centered on changing the PAYE option. And furthermore, I believe they'll keep these negotiations hush hush to avoid Republicans somehow trying to ruin it. But know that Obama already instituted PAYE and REPAYE during his term without so much as a single Republican supporting it, they came out against it atually.

[dugog55]

5. Speaking for my son that graduated college and then went to veterinary school

that is good news. Still, how in the world did Congress allow the interest rates they charged those young people. The lenders get money from the Fed at less that 1% (.75%) during my son's borrowing years. And yet he had some loans that were charging him 8.5% interest. He could get a better deal than that from a guy on a street corner.

Vet School cost him almost 40K a year, certainly more than I could have helped him with. So after four years he owed $160,000. His average loan was 7% ( he had multiple as he reapplied each year and sometimes each semester). 7% of $160,000 is $11,000 a year, just for interest. And he was lucky enough to graduate in 2009 right when the major recession was crippling the country. Jobs were very scarce and difficult to get.

Apparently any profession one would choose to follow that requires four more years of college is only for the wealthy or well off. Most Veterinarians are grossly underpaid compared to people doctors. And the joke at my son's school was all the kids that dropped out of Vet School just transferred over to Medical School because it was much easier. Drop out rate at Vet Schools is around 50%. It is brutal schooling and takes really dedicated students.

[Bantamfancier]

8. Just one objection to your post.

The drop out rate for vet school is 2% not 50%.
The kids going into this profession are very driven and determined to succeed.
If half of them didn’t finish, no one would apply.
My youngest just got her DVM last month.

Yes, she owes a shitload of money, but her decision to go into Vetmed was never about the money.
So this rule change would be welcome news.

[dugog55]

12. I will agree that my 50% drop out rate may be high.

After searching the internet, there is surprisingly little info on that subject. I saw ranges of 1.4% to 15%. And students that pass the NAVLE at about 90%. I could not find any info on the mid-2000s when my son went to school. But he said at least 30% of his classmates were gone by the end of the second year.

And for most kids that go into Vet work, it certainly is not about the money. There are way more jobs with easier college classes that make a ton more money than being a Veterinarian.

Just getting into a vet school can be a challenge in certain states. It is certainly one profession that gets the cream of the crop.

[aocommunalpunch]

7. I'll take cynicism for a bazillion.

I see the current system staying in place as is.

[Johnny2X2X]

9. Not a chance it stays the same.

Obama already changed it dramatically with this same process. Biden has pledged to take it further.

[Cuthbert Allgood]

10. He also campaigned on debt forgiveness.

And if you think young voters are going to forget that, you are going to be unhappy.

[Johnny2X2X]

11. $10K in forgiveness is what he campaigned on

And he still supports it. But the changes he can make without Congress will be more impactful than $10K in forgiveness.

[fescuerescue]

13. The downside is that everyone gets 20 years of payments

[Johnny2X2X]

14. No, there are other options for repayment

Still a dozen other payment plans to choose from, if you owe something you can pay off in 5 or 10 years, you pick another plan.

[fescuerescue]

30. well yes.

I mean you can just write a check too.

What I'm saying is that if you cut the payment in half, your term goes up significantly. In many cases it will last the full 20 years.

Personally, I think loan forgiveness is a better way to go.

But it's better than nothing I guess.

[liberal N proud]

15. Great news

[Johnny2X2X]

17. And I see it as a permanent fix

Obama offered the PAYE option this way and even Betsy Devos didn't get rid of it, once people are locked into it, it's there for good.

And students will know, OK, I'm going to college, this will cost me 5% of my take home pay for 20 years after that, that's a fair deal with no surprises.

And this doesn't mean we can't work to reduce costs at colleges too.

[Politicub]

16. Great post. Maybe there will be more PR about this as the rules get solidified.

While I’m in favor of loan forgiveness, it is a polarizing issue for a lot of people, which includes many in the Democratic Party.

I agree with you: Biden’s plan will be a game changer for people who are paying back their student loans. People without loans or who have been fortunate enough to pay off their loans may not appreciate it, but there is no policy that would please everyone. However the policy will improve the quality of life for current and future borrowers.

[Johnny2X2X]

20. It's life changing to me

My payment will go from something I cannot afford to something I can pay without too much suffering.

[Blasphemer]

18. I think this is a great improvement and I support it but Biden is going to have a messaging problem

One of the problems I have with the progressive wing (I say this as someone who supported Warren before Biden and generally supports progressive polices) is that it hamstrings the Democratic party by unnecessarily focusing in on just one solution, instead of embracing many possible solutions that are equally beneficial. It doesn't have to be "student loan forgiveness or bust," but it is in the eyes of many. I was dismayed when I heard young people pick up the "Biden promised us $2000" line when we added $1400 to the $600 the GOP limited us to. The lack of debt forgiveness will be a political problem unless we get the messaging right, ideally with the help of progressives.

[Johnny2X2X]

19. Get it enacted and then message, this is massive forgiveness

This is actually the forgiveness of $Hundreds of Billions in students loans, because after 20 years any remaining balance is forgiven and for many borrowers that will be $Tens of thousands of dollars.

And again, Obama created the PAYE out of thin air through this rules process, all Joe is doing is changing 1 line in that pay back option.

[MichMan]

21. Any forgiveness for people who stopped paying ?

Some gave up and stopped paying altogether or paid very sporadically. Looks like this requires 20 years of continuous paying.

Is there any relief for them or does the 20 years start over ?

[Johnny2X2X]

22. Not sure

I'd imagine they'd get some back credit. Either way, this will get people, all people on plans they can afford. If there are breaks in their employment when they cannot pay, there will be some relief I am sure.

5% is a good number, 5% of your discretionary income is a reasonable price for college.

[Trailrider1951]

23. One change I'd like to see is the lowering of interest rates across the board

Not only federal loans, but the private ones as well. 1 to 2 percent should be enough to pay over 20 years. And for God's sake, GET RID of capitalized interest! If you're in forbearance due to job loss, life circumstances or health emergencies, you do not deserve to get that interest (bank's profit) added back to your principal!

[mcar]

27. I like it

Once again, President Biden delivers.

[WarGamer]

28. I always thought forgiveness was a loser, politically...

Payment reduction isn't the same thing...

Might make *some voters upset.