FAIR MONEY

Face to Face with Inequality


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PAYE Stands for …?

Anna Bahr presents an analysis of the impact of Obama’s recent “Pay as You Earn” legislation, suggesting that it might really stand for PAY Extra. According to Bahr, “PAYE tends to save money only for those low-income borrowers who have incurred an unusually large federal debt.” Bahr offers a few examples of people with more usual loan amounts, who would actually pay more under PAYE than under current rules, because as they repay more slowly they will incur more interest on their outstanding loans.

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Paying for Educational Value

Oregon is considering the pros and cons of an Australian model of paying for college education after the fact. In this model, students pay no tuition. Instead they pay a small percentage of their income post-college, regardless of how much they make. In essence, how much they pay is directly related to how much college was worth to them, which makes a lot of sense on the face of it. I wonder how it changes the students’ experience of their education and the educational institution’s conception of what and how to teach students. I was able to find a study of “participation rates,” which doesn’t answer my questions, but it does show an overall increase in men and especially women getting a college education, but no increase for students from low-income backgrounds. Perhaps that has something to do with financing living expenses.


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Give students the same interest rates on loans as the big banks

There is an Elizabeth Warren sponsored petition winding its way through MoveOn.org aimed at putting pressure on congress to reduce the interest rate on student loans.

While reducing the interest rate would help with short term problems related to student loans, it doesn’t broach the broader question of why higher education in the United States is organized in such a way to require taking on so much debt. It will take more than a petition to force that question front and center.


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Student Loan Fairness Act

Rep. Karen Bass (D-Calif.) is trying to introduce a new bill to ease the burden of student loan debt. You can read about her efforts and become a Citizen Co-Sponsor at her website.

Summary

This new legislation will be a combination of two bills from the 112th Congress: Rep. Hansen Clarke’s Student Loan Forgiveness Act (H.R. 4170), as well as The Graduate Success Act (H.R. 5895).

This legislation would establish a new “10-10” standard for student loan repayment as the new standard repayment plan. In the “10-10” plan, an individual would be required to make ten years of payments at 10% of their discretionary income, after which, their remaining federal student loan debt would be forgiven.

The Student Loan Fairness Act would also combat crushing interest rates of public and private loans by capping federal interest rates at 3.4% and allowing existing borrowers whose educational loan debt exceeds their income to convert their private loan debt into federal Direct Loans, then enrolling their new federal loans into the 10/10 program.

This bill works to jumpstart the economy and adds to the public service workforce by rewarding students who enter public service professions and work in underserved communities with a reduced period for loan forgiveness.

The Student Loan Fairness Act also sends a lifeline to student borrowers who have fallen on difficult times. The bill seeks to ensure that no one will be pushed into poverty because of illness or loss of their job and extends interest-free deferments to unemployed borrowers of unsubsidized federal student loans and those enrolled in the “10-10” repayment plan.  It also seeks to replace the current, 10 year “Standard Repayment Plan” for the full amount of the loan balance with the “10-10” plan as the default repayment option for borrowers entering repayment.


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The Student Loan: Grim Reaper of Hope

The Huffington Post reports some jaw-dropping numbers for projected profits from student loans in May 14 article entitled Obama Student Loan Policy Reaping $51 Billion Profit:  “The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation’s most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets.” The whole article is a must-read