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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The problem is the actual graduation rate for those who start school and take out loans...if you consider public, private, online etc...is pretty low. Some estimate as low as 50%. If true that means you already have 50% that have very little chance to ever pay back the loans. Then you have people like the example you use. Many if not most colleges sucker people into believing your degree in anything is your ticket to prosperity. It's an absurd notion because a degree simply means you can read and can pass tests over a period of time. We are led to believe that knowledge is greater than skill...which is funny in itself since most retain less than 25% of what they learn in college. The government ettc has done lots of advertising to make you believe that is true. The truth is, it is not.
The brighest and the most hard working among any class of citizens will always surrvive and eventually thrive...no matter what the field. I can assure you the best ditch digger in the world is being paid hansomly. The government wants everyone else to believe they have become a victim of the capitalistic machine....forget responsible decision making, hard work etc. If you are not succeeding it is NOT your fault. Dropping out of school, taking drugs, being lazy, having kids out of wedlock with multiple partners are all because you were disenfranchised by the system that is stacked against you. You NEED government to level the playing field. That is Obama's world. And despite example after example that this type of world leads to lower quality of life, enough people who only see life as far as their hand in front of their face will believe it if they are told enough. This is America's struggle for the next decade. We change course or drown.
"...a very good safety net for those who have borrowed too much" is a very distrurbing statement.
BTW, according to usdebtclock.org the 1 T mark was breached in last week and now stands at 1,000,552,700
Obama and his cronies are really hell bent in turning America into a Socialist state. Not necessarily only due to their belief that Socialism is better but moreso that it creates virtually unlimited government power and influence over society. If you still believe this is more ideology than orchestration than I suggest you haven't been paying attention.
- Obama turned "balanced approach" of re-election campaign into a 620 B tax increase while offering 15 B in spending cuts. The new Sandy relief bill is 65 B alone with about 30 B in pork. Or in other words the spending "cuts" just got trumped x2 with pork on one bill. And like always the admin masks it by holding up the baby who will be hurt. For fiscall cliff it was "middle class family" tax increases (which btw happened when they allowed payroll tax holdiday to expire). They were hoping to ram through the Sandy bill at 11th hour without anyone evn noticing the 30 B in pork.
- Obama required and the GOP caved in all sequestration cuts would have to include revenue matches with 50% being military. Again it does NOTHING to solve debt issues and allows the Dems to paint GOP as tax increasers, hurting national security etc.
- Obama, from Hawaii, said he would not negotiate the debt celing because the US has an obligation to pay for things that have already been agreed upon by earlier legislation. In other words, no cuts in spending. Obama knows most of the GOP will not breech the line in the sand of it's base and reuire spending cuts. Obama will slowly build his narrative using the bully pulpit that it's a moral obligation to pay for the things we said we would pay for and slowly float the idea that he will ACT if the GOP won't. Meaning he will raise the debt ceiling himself. He believes that will give him carte blacnh for the rest of 2nd term to do his will...ie destroy the private sector. The problem is if that doesn't create a debt downgrade than nothing will and with Obama raising debt ceiling not one piece of legislation will pass the house after that until the mid term elections.
The GOP better start emphasizing Obama's blantant contridictions in statements and hammering the fact that the 250+ B in debt interest and 122 T in unfunded liabilities is very real and very growing. I would say over and over that "they want you to believe the money paid in debt interest and the 122 T are not real..." and then go on to use examples on what 256 B could pay for and talk about at what point the systems become insolvent and what happens when they do.
This student debt issue is just another spending boondoggle to garner votes from the sheep. There is no doubt in my mind that the national debt will go up, at minimum, another 10 T over next 4 years. If we get any shock to the system, well, we will get what we deserve in the words of Jefferson.
It's all a scam. Top universities take money from second-tier students who have no chance of real advancement all the time. Even worse, many unaccredited tech schools are criminal bust-outs that exist to simply collect student loan money for a time before they are shut down for too many defaults.
Hitler must be laughing, Aushwitz,Dacchau, Buckenvald, Treblenca... he had a bad marketing plan;
shoulda put em all in College Concentration Camps; EZ degrees in pottery or Main street media 101 and Porn 101.
Nein nein nein, getting em all hooked on College with subprime slave debt; make em pay just 20 % rent to the FED
holding the bailed out mortggage and then turn em on the street corner as unionized hookers in real estate,
reporters for MSM, or sell mortgages or Teach; public sector you get out of the promise and lies in 10 years.
This is a copy of mortgage Plan; pick a payment plan?
FED buys the underwater or defaulted mtg, from bank, and now its no buyback
the sucker slave pays 10% for 20 years and then stuff the rest.? theres no negative amortization added to the back,
well there is, but its forgiven, and the compound and bal is stuck to the Taxpayer, and natl debt, but its monetized.
and all loans are now off banks books/capital; $ 1 Trillion of mortgages on banks sheets
now hit FED sheets as performing on fed Sheet and Monetized.
Hey can the fed do the same for the all the fannie and freddie and FHA foreclosures?
Testing testing? 6 m foreclosures and notices of default (non payment) and 650,000 FHA shit loan defaults?
No problem pitch em to the FED.
hey thats $ 500 B of mortgages, makem do a 20 year harp hamp chump dump loan with the FEd and in 20
pay 20% of your income to your debt and then you get it free>......... hey thats the plan.
Fed buying $ 45 B a month of the harp loans non performing, loans NOD, non payment and foreclosed and will make
make em slave loans pay 20 and the rest is the chump tax payers,
This way ALL MORTGAGES ARE PREFORMING,
END OF CRISES; REMEMBER A SCAM IS NOT TO BE WASTED.
I can hardly wait to hear how the govvies will ensure that only the party faithful reap the rewards of this program. Hmmmm, Maybe by focusing on blacks, women, gays, people on welfare, the unemployed, you know - democrats. I forgot hispanics oops.
Give the outrage a rest, bitchez. $13 trillion that is doing jack-shit for ecoomy has already gone to the banksters so they can continue to enjoy foie gras and Ferraris. At least the money the kids don't send to these same banksters will get spent in the real economy.
The money the kids dont send to the bankers is money that I and other taxpayers have to send in
Heard of SoFi? They fund student loans at only the top schools where default is nil. Lower level schools have high default rate...effectively skimming the best loans from the trillion dollar portfolio....leaving just the crap.
Accelerating the need to "do something" in the eyes of legislators?
the economy truly will end up like Greece, or worse North Korea. If no one is ifixing and intervention is just what happened in the USSR, until everyone playing by the rules saw how everyone in the black market was kicking their ass.
Black market meaning going outside the gubbament set up financial system, IE. bartering and just plain using dollars instead of Rubels. This willl happen here more than it ocurs now, that is gubbament workers do so little on their full time gubbament job they work off the books too.
Plus the prisons for profit (Auschwitz revisted) crowding out jobs too!. Welcome to paradise COMRADE!
I believe it is time to change this article. I do not look like a Chinese elderly lady.
Here's a cool thing about the programs. It's based on AGI numbers. There's an actual economic incentive to get the fuck out. Work overseas, and with the foreign earned income exclusion... or more appropriately, the fact that you don't disclose things like an idiot boyscout, your AGI is now $0. $0 AGI means $0 payment, and that $0 still counts as a "payment". Take some savings and payoff someone to give you a ghost job at a non-profit. Stay overseas for 10 years and you never make a payment and it's all forgiven. In the meantime, the private loans have now hit the SOL, and they are long vanished from credit reports. Enjoy your freedom.
If those college grads just went out and got a good job like the promise said they could pay off those loans. Oh wait, all the jobs got shipped out... but lets make it the students fault. brilliant !
Why do we have to apportion blame?
The real issue is do students and ex students think it is justified to make me and other taxpayers pay off their loans.
I hardly think it's fair to call this a 'bailout' in the same sense as a banker bailout. Please....
Why does anyone need to go to school? All you need is to lower taxes for JOB CREATORS: there are going to be plenty of jobs.
So tell me, aside from good morals, why would I pay back my student loans?
I'm an English student and planning to do my MSc on the continent. High fees? That's cute, but we do have free movement in the EU and UK universities need to wake up and smell the coffee. They are competing with German universities for our custom and cannot expect current student population levels to continue as word gets out about EU universities.
Great. Paid tuition for 7 kids............now I'll get to pay some more.
Yep. Feel like a putz.
I've said it before, and I'll say it again, until it fucking sinks in for everybody or just anybody. Everyone going to school to be a scientist, technician, engineer, or mathematician ain't going to fix this. Who's going to employ all those fucking "brains" anyway? Huh? Uncle Scam? Oh boy, I can't wait to see what new privileged weapons (for Uncle Scam only) and enslavement grids they'll be able to create. Fucking morons...
This is not a problem, it is a symptom of something far greater.
THERE"S TOO MANY JOB TAKERS AND NOT ENOUGH JOB CREATORS.We have lost the entrepreneurial spirit, the desire to be an independent man and not a wage slave. Why? Probably because we're no longer a free market capitalism, but that's just a guess...
Hello everybody
Read the fine print carefully. Extending the loan beyond the standard 10 yr plan will equal a higher total payment for the loan ( horrible if there is deflation eventually) and any loan foregiveness may be TAXED.
http://studentaid.ed.gov/repay-loans/understand/plans
Always better to live debt free. You can't outscam the government and their agenda to get everyone into debt slavery.
The program started last month, but did Congress have to authorize this or can Obama and company just do whatever they want now?
U know what, fuck it. I am going back to school to become a fucking doctor on the gov's dime. Then I am going to work in Canada and you can come at me bro.