Here Comes The Student Loan Bailout
2012 is the year the student loan bubble finally popped. While on one hand the relentlessly rising total Federal student debt crossed $956 billion as of September 30, and was growing at a pace that will have put it over $1 trillion by the end of 2012, the one data point confirming the size, severity and ultimately bursting of this latest debt bubble was the disclosure in late November by the Fed that the percentage of 90+ day delinquent loans soared from under 9% to 11% in one quarter.
Which is why we were not surprised to learn that the Federal government has now delivered yet another bailout program: this time focusing not on banks, or homeowners who bought McMansions and decided to not pay their mortgage, but on those millions of Americans, aged 18 to 80, that are drowning in student debt - debt, incidentally, which has been used to pay for drugs, motorcycles, games, tattoos, not to mention countless iProducts. Which also means that since there is no free lunch, all that will happen is that even more Federal Debt will be tacked on to replace discharged student debt loans, up to the total $1 trillion which will promptly soar far higher as more Americans take advantage of this latest government handout. But when the US will already have $22 trillion in debt this time in four years, who really is counting? After all, "it is only fair" that the taxpayer funded "free for all" bonanza must go on.
The latest debt bailout, not surprisingly is not titled "Yet another taxpayer funded bailout for those who bought things they can't afford on credit" as that would not be very politically prudent, especially for those politicians who still have taxpaying citizens as their voters. Instead, its name is the much more PC: "Pay as You Earn Repayment Plan." Alas, it really should be called the former, because what it does is it incentivizes Americans to borrow even more Federal student loans, well aware that there will now always be a cap on the associated monthly interest payment which will never leave a mark regardless what the full underlying loan notional is. It also provides for full debt discharge should the borrowers end up with cushy Federal jobs - because the one thing the US government needs afford is more debt-saddled government workers.
What is the "Pay as You Earn Repayment Plan"? The WSJ explains:
A new federal program should make it easier for some recent college graduates to keep their student-loan payments manageable.
The new option, known as the "Pay as You Earn Repayment Plan," lets eligible borrowers sharply lower their monthly loan payments and qualify for loan forgiveness quicker than they might otherwise.
"It's a very good safety net for students who borrow too much," says Mark Kantrowitz, publisher of the financial-aid site FinAid.org. "If your debt exceeds your annual income, you will probably benefit."
Pay as You Earn, which took effect on Dec. 21, "is designed to help offset the effects of the recession for student borrowers most likely to take a hit in this tough job market," says Lauren Asher, president of the Institute for College Access and Success, which has pushed for the creation of income-based repayment plans.
Which in the New Normal, means everyone with a student loan will benefit. It also means, that courtesy of knowing this safety net is there, more and more people will take advantage of the government's latest generosity with other taxpayer's money.
What are the terms of this new bailout?
The new program comes at a time when rising student-loan balances—amid a still shaky job market—have weighed heavily on many families.
Typically, federal student loans must be repaid within 10 years. At current interest rates, that can work out to a monthly payment of roughly $300 for a borrower with $26,000 in debt.
Pay as You Earn, by contrast, limits student-loan payments to 10% of "discretionary income" as defined by government formulas. Borrowers who make regular payments could have the remaining unpaid amounts forgiven after 20 years.
So much for student debt being non-dischargeable: borrow hundreds of thousands, but make your monthly payment of a hundred or so bucks, and in 20 years you will be debt free, courtesy of US taxpayers. Actually, scratch that: one doesn't even have to make a payment!
In some cases, borrowers with low incomes could be required to make a zero-dollar payment and would still be considered current on their loan. Monthly payments can increase or decrease each year based on the borrower's income and family size.
For those who think getting full debt forgiveness in 20 years is far too long, why there's a loophole for that too: just go "work" for Uncle Sam:
Borrowers with public-service jobs may qualify for loan forgiveness after just 10 years.
As for eligibility "constraints":
To be eligible for the program, borrowers must have taken out their first federal student loan after Sept. 30, 2007, and received at least one federal student loan after Sept. 30, 2011. Borrowers also must meet eligibility cutoffs based on the size of their debt, their discretionary income and family size.
The U.S. Department of Education's Pay As You Earn calculator, available at studentaid.gov, can help you determine if you qualify. Borrowers can apply for the program online or by contacting the loan servicer that collects their payments on behalf of the federal government.
In other words, virtually all people who were responsible for the diagonal take off in the Federal student loan total in the current depression are now eligible for what will eventually be full debt discharge.
So let's get this straight:
- go to some "everyone who applies is admitted" community college
- take on the biggest Federal loan one can get
- use the proceeds for everything besides the tuition (of course)
- be unable to find a job after graduation (naturally)
- plead poverty, accusing evil employers who don't hire those who majored in Foosball, and make "zero" payments while remaining in "compliance"
- get a job working for the government, wait ten years, and have the entire loan magically disappear.
And there it is: incentives for the common, and very much broke, man in the New Normal.
If there is anyone out there who thinks this will not result in a "charge it" feeding frenzy and that the Federal student loan total will not go absolutely parabolic going forward, please raise your hand.
Of course, what is not discussed, is who is on the other side of all those forgiven loans. And the answer, dear taxpaying US readers, is starting at you in the mirror. Because all the Federal government will do is transfer the unfunded obligation, which has already been used to satisfy the purchase of goods and services, from one individual to the whole group.
But when one is dealing with the government of a country that is no longer even fit to be defined as "banana", what is adding one more trillion between already insolvent counterparties.
Finally, yes, this means the Fed just tacked on one more year of QE to its $1 trillion/year in US debt monetization, which also means the Fed's balance sheet will now also be used for to fund student loan forgiveness, among so many other things.
Insolvent students of the world, unite!
(65 votes)
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You mean, socialize losers on the Plantation re-run, to pay all costs.
The generalization that 'rich people' want workers and society to take the burden of education and risk is not only incorrect but exposes the social agenda of AH. Propagandist often will not deny the evil of a situation, but will simply redirect the blame to a class of people viewed as the enemy thereby protecting the real antagonist.
double post
I like how the bailout helped people who borrowed too much as opposed to those who lent.
The whole thing still fucking stinks.
And the guy that doesn't borrow gets a good, hard one in the ass, once again.
This is no different than all of the "homeowners" that took out 100% mortgages, or more, and now live free in "their homes". The irresponsible prosper as the responsible get ass-raped. But the whole point is to use government programs as slush funds to buy votes from preferred constituents.
And on and on it goes. Which part of his voting base will FauxBama bail out next? If I were a golfer I would be wracking up as much debt as humanly possible.
This should be a huge boon for the 529 plan business. By boon I mean THE END.
Also: a brand new class of employment for new graduates... a kind of extended internship which (a) pays almost nothing for some time (so qualifying the new employee for the "financial hardship" status which will cap his loan payment) and (b) provide the experience and credentialling which will provide a pathway into the elite.
In short, this bill will kill entry level salaries for all jobs - "good" jobs as well as "bad" jobs - because there will be a huge new pool of graduates who will take the tiny salary, and view it as a "feature", not a "bug". There will still be huge competition for these "good" jobs - especially in STEM (Science, Technology, Engineering and Math) as they will hold the promise of big $$ and power later...
In Japan, there are workers at Toyota who has been "temp" employee status for 10 years.
In Europe, you don't get jobs unless you know someone and it is only a job at government agency doing shuffling paper.
only humane thing would be to decrease population as nature tend to curb overpopulations by depriving resources.
Can ya spare a match?
"Borrowers with public-service jobs may qualify for loan forgiveness after just 10 years."
You see comrade! Your service to the Fatherland will be rewarded!
Fucking Forward!!!
I'm wondering just how many government jobs will actually be available for these graduates..... local gov is cutting back, laying off people. The Feds may have been expanding their hiring but I wonder how much longer before we see serious cuts there. If you can't GET a gov job the whole thing is moot.
Well, the "progressives" in our society wanted (or fell for the idea of) giant FDR-type public works projects...
(Putting on my national socialist central planner hat & grinning like a possum eatin poop while clamping a cigarette holder in my teeth) a third can be put to work toiling away in the fields to feed the other two thirds of the government labor force, another third working on all those decrepit roads & bridges that never seem to get fixed no matter how much money is thrown at cronies and the final third (unsuited by nature or circumstance) in the administration of it all shuffling papers around tracking it all.
Its what they wanted...I say give it to them in spades ;-)
Can you say NDAA . They'll be assigned to the euthanize granny brigade.
I took out a 0% down ARM eight years ago on my place, had a credit score of 620. I paid my mortgage faithfully for four years (shoulda waited another couple), and refi'd with a conventional loan. Now my credit is 800, and I can't get another loan for shit. Go figger.
its not the credit score that is important its your IQ - you need to fuck the banks and then you get more money - wake up!
The irresponsible prosper as the responsible get ass-raped.
The country is run by parasites, who were raised by parasites from a long line of parasites, and don't possess the genetic ability to produce anything but more parasites, either through procreation, or enlistment. Their business is stealing, and business is good.
It helps the bank who lent - they can't get blood from a stone anyway, so now this formalizes a tapayer funded bailout.
The FED is fighting deflation with both bazookas ablazing. The problem is that as an unintended consequence (?) failed organizations get put on life support, competinga nd draining resources from successful ones. This zombifies the economy (think GM vs Ford. If GM went under, then Ford wouldn't have to compete against them and could sell more Focii)
it is all for the banks.
home owner bailouts = bailout for banks who made the loan
student loan bailouts = bailouts for banks who made the loan
government austerity/bailouts = bailouts for banks who made the loan
Instead of putting people in debt, then bailing them out, they should allow people to make purchases outright by increasing supply and lowering purchasing costs.
"Instead of putting people in debt, then bailing them out, they should allow people to make purchases outright by increasing supply and lowering purchasing costs."
Who is "they"?
//////////////////
No answer? Why is that?
Couldn't possibly be the same "they" who pushed people toward debt as an outlet for their desires in the first place could it? And how will this new monstrosity of central planning play itself out?
We gonna have the state implement price controls?...wage freezes?...wage rises?...mandate production increases at the point of a gun to drive prices down, at who's expense and who's labor and final glut?
Babe, really?
The only way out is debt repudiation or systemic collapse...gird your loins and keep your head out of the toilet because reality doesn't change...only your perception of its echo.
You're kidding, right?
This IS another bank bailout.
They don't care about students, just the institutions that are OWED this money.
Bill Clinton tightened the screws on student loan discharge and Joe Biden finished the suckers off with his Bankruptcy bill in 2007, he fronted for the credit card scammers while a Senator.
But you make a valid point, the banksters on the Upper Eastside of Manhattan got TRILLIONS, perhaps SEVEN TRILLION taxpayer dollars. Most of these students were just going what SOCIETY said to do, and why should their LIVES be ruined, forever? A dear friend of mine's son did what everybody says you should do and got loans and went to college to study engineering. Upon graduation he found that the firms were hiring Indians and other Asians for those engineering jobs. His father had been IT who was kicked out after he trained his Indian replacement. So since all the "favorites" of the regime have been getting "goodies" from We, the Suckers, why shouldn't some of our own get it? For goodness' sake.
SCREW THE BANKSTERS and their PUPPET in the Black House.
They should learn not to do the stupid things that government -- not society -- enables them to do. Someday they may end up doing what the government tells them to do and have their lives ruined in an exploded Humvee in some God forsaken place. There's no bailout for that.
it was part of central planning by neo-liberal economists.
1 export "dirty" manufacturing jobs to Chinese slaves
2 import illegal mexicans for "dirty" service and farm jobs in states
3 US Citizens get entertainment/sports jobs or cushy jobs after college education with high US salary
except business got around this by importing college grads for entry level jobs.
Sounds like we need a little LESS central planning.
The professors are the big winners. If nobody has to pay, they can charge more and more. Either the graduate gets a crappy job or no job or a good job (public sector) and doesn't have to pay.
Not the professors; while there are some professors now of bs courses and majors, many professors don't even get paid all that well. Schools don't value the quality of the education they produce anymore, so why bother paying good professors when your football team gets alumni dollars and new sheeple students with untapped federal loan coffers.
The beneficiaries are these huge administrations, collegiate sports teams, and school bureaucracies, all of which have been exponentially expanding from funding by endless student loans. Increasing education's cost while watering down its value.
I imagine beer commercials and real estate investments are near the top of the priority list. Gotta have lots of marble and brass too.
Tyler I humbly put this forth as the ZH National Anthem. Should suit us well going forward.
http://www.youtube.com/watch?v=n4dmkswFCq8
Don't do that.
I give up Crockett. Had a blowout argument with a friend of mine last night over all this shit. I just don't care anymore. People are already brainwashed. What a mess.
A friend of mine has said some things lately that make me think he's starting to see the handwriting on the wall. It's encouraging but I fear time is short. On the other hand I'm tired of waiting for the other shoe to drop.
It's not too late guys. Others will catch on. They need real teachers and mentors though. I'm sure there are more than a handul of folks here at ZH who have the wisdom and ability to pass the message through even the thickest of skulls.
Just a handful of years ago I was a state AND religion loving neocon...I've come a long way but only with the help of truly knowledgeable folks. Lots of credit goes to them!
+1
In 2006 I was elected to a picayune seat on my local Democratic Committee which I resigned in 2008 so that I could register Republican and vote for Ron Paul in the PA primary. There are many paths to enlightenment, grasshopper.
If you were a religion loving neocon, you were a protestant. Good move, but don't throw out Christianity with Protestantism. Most ZH people are smart guys, no doubt. But IQ and wisdom are entirely different things.
It's over.
Doug Stanhope on population:
"Don't bring the product out before you build the shelves."
If you make student debt dischargeable, you've essentially made college "free".
So now janitors are getting money taken out of their paycheck so someone's little princess can get her 3rd Masters degree in Gender Studies? Yea, that sounds fair. If you start forgiving student loans, you're essentially going to have the entire United States becoming professional students.
If you want to make college affordable, get the government out of the equation to stop trying to make it affordable. Same with housing.
During the Vietnam war boys. will attend college to avoid the draft. Once the draft was abolished the colleges suffered greatly. That was most likely the beginning of the student loan campaign which is now way out of control.
My cousin finished medical school in Bucharest $3k per year. Think Grenada, South America etc. All you need is one year of language. If you can't learn the language in one year living in-country, you don't deserve a college degree.
As a college prof, I say RAISE MY SALARY!!! Woohoo. We've got a lot of idiot students coming through, and we need to charge them higher tuition so that they can take advantage of this.
(Needless to say, I'm being sarcastic. I bet only the administration will make any more money because of this bullshit.)
I had lunch with my old Marketing Communcations professor who laid out 3 things:
1) His department was the only one with an effective internship and business project outreach program
2) His program was growing
3) The econ department could no be convinced to offer an econ class with actually useful items.
Of course neither of them had heard of Austrian Economics.
I's sur reemembers alls the profissors i's hads. theys gives me gud grades. i's lookins for a grate jobs.
Tri TSA and no pay debt.
With all the cameras, watches & rings you can cart off as a fringe benefit!
Forward Comrade!
This is ceasing to be funny. Groping old men for ten years to negate your student debt sounds like Kafka. The old Soviet Union has nothing on us, not anymore.
Actually its quite funny, in a twisted sort of way.
Lets not teach real history with cause & effect, lets break it down into meaningless "feel good moments in time".
TPTB have indeed learned a few things from Soviets...but I still don't think they can handle the strain of keeping all those plates in the air ;-)
Students in RI arrived this week to find the Sawyer School locked. These students will lose time devoted to studies and all that federal money they used will be forgiven now.
They can have their records to try to get into other programs.
The money simply evaporated!
Why blame the students?
Once again, it's the banks. They have no skin in the game. The debts are covered.
What students need is the right to go bankrupt.
Bankruptcy solves a lot of problems.
http://www.angrysinner.blogspot.kr/2013/01/saturday.html
Students need to take personal responsibility. The claim of this level of ignorance is not an excuse. If it is then they should not have made it past the admission office.
Why blame anybody?
Why punish taxpayers by making them pay up the difference?
I hear you. This is why while obviously there are powerful luciferians/illuminati people behind the scenes who have tremendous control, the people themselves who go along with the MSM and 'safety' in exchange for liberty are complicit. You do still have a choice. Yes, the deck is stacked against the guy who pays his bills, mortgage, etc., but you can still be a responsible, accountable person.
This tripe article adds nothing except vitriol. I'm already pissed off anyway. This kind of stuff just gets the engines gunning with no race to run.
Where's the new information that will help me through this debacle?