Repaying student loans

Monday October 29, 2012

The Daily Gazette, Schenectady, N.Y., Oct. 22

Loan debt incurred by the average college student jumped to a record $26,500 last year, 5 percent over 2010, so new Obama administration rules aimed at easing payback schedules are welcome. The only problem, according to a report published recently, is that the one-size-fits-all rules will end up benefiting people with high incomes disproportionately more than those with low ones. That’s not how it should be.

One of the president’s big campaign talking points is about helping the middle class. The new rules -- which reduce the percentage of discretionary income factored into loan repayment schedules, as well as the length of the repayment term -- would certainly do that. But according to an analysis by the New America Foundation independent think tank, they would help people with high incomes the most and those with low incomes the least.

Starting this month for some recipients, instead of capping monthly payments at 15 percent of income, they will be capped at just 10 percent; and instead of forgiving the principal after 25 years of payments, it will do so after just 20. Smaller payments over shorter time frames mean larger bills for the government. And that might not be so bad if the arrangement were structured to help people who need it most; instead, it’s tailored so students who borrow the most and make more money (i.e. graduate students) pay proportionally the least. ...

The foundation report claims the skewed arrangement has emboldened financial planners to encourage graduate students to borrow to the max, pay the smallest they can get away with, then walk away after 20 years, leaving the government holding the bag.

Clearly, the rules need to be changed so that a lawyer or other professional earning well into six figures is not allowed to do that. Pell Grant funding

The Washington Post, Oct. 20

In the Oct. 16 presidential debate, both candidates pledged to shower money on struggling college students.

Mitt Romney praised a tuition-free college fund in Massachusetts and promised to "keep our Pell Grant program growing," a theme he also struck this month when he pledged not to cut "funding" and "grants" for college students. President Barack Obama responded he has already enlarged Pell, the $36 billion keystone of the federal student aid system, by billions over his first term. One reason to raise tax revenue, the president said, is to keep investing in education and other priorities.

Neither candidate mentioned that Pell grants already face a looming funding crisis ...

Obama doubled Pell funding in part by reforming the federal student loan system and applying the savings to Pell. But Congress didn’t commit enough revenue to keep Pell grants at their more generous terms permanently. Last year Obama and Congress scrambled for last-minute cash to maintain the pumped-up program. Another scramble is in the offing once that is exhausted. ...

Romney’s positioning is even more suspect. The Republican had previously argued that federal education spending fuels the rise in tuition, making his latest statement appear to be just another general-election flip to the middle. Even were that not the case, any spending pledge from a candidate whose most consistent and specific priority is to cut taxes should be automatically suspect. ...

In May Romney proposed to "refocus" grant dollars, which probably means adjusting the program’s eligibility requirements, cutting some students out. That could save some cash, but he gave no details. ...

Fine promises on Pell grants without the substance to back them up neither serve Pell-dependent students nor advance smart budgeting, in which priorities compete fairly and trade-offs aren’t hidden.


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