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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Two Questions Suffice?

According to Susan Dynarski and Judith Scott-Clayton, the FAFSA could consist of just 2 questions and more people would manage to go to college and stay there until they get their degree (The Cost of Complexity in Federal Student Aid).

I have a lot of other questions. For instance, what would happen then? Would we have more college grads with good jobs and solid prospects? Or would we have even more young adults with staggering educational debt and a hard time finding a halfway decent job? It’s instructive to consider the post-graduation realities laid out in It’s Official: The Boomerang Won’t Leave. According to that article, “more than half of recent college graduates are unemployed or underemployed, meaning that they make substandard wages, in jobs that don’t require a college degree.”

One last question: how do you fix that?


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Is It Worth It? – Part II

Bob Samuels of the AFT has calculated the cost to society of free public higher education. His magic number is a cost of $127 billion annually, a figure offset by a variety of savings. (For instance, we’d see a significant reduction in the cost of student loan programs. And we could reap more taxes by ending tax breaks on on education-related investments, which turn out to be a handy tax shelter for the rich.)

By my calculations Samuels’ total cost, never mind the offsets, would be approximately the same amount of taxpayer money as the cost of war since 2001.

I haven’t got a clue how to calculate the total social benefit of free college tuition at all public institutions of higher learning in the U.S., but I am pretty sure we’d get more out of it than we get out of the war in Afghanistan.


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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 Loans from 10,000 Feet

I’m sitting next to a marketing lead for a student loan program with a major bank. She explained how there is a lot of education about what student loans entail before you get into one. “It’s their responsibility,” she points out. “They sign for it.”

That’s how the societal problems of income and educational inequality and of unregulated educational institutions get translated into individual responsibility–by a very nice lady, who just happens to make a living from selling indenture as effectively as possible.


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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