Obama announces help for student loan borrowers

[Teh One Who Knocks]

By JIM KUHNHENN and KIMBERLY HEFLING, Associated Press Writers


http://i.imgur.com/agsii.jpg

DENVER – President Barack Obama recalled his struggles with student loan debt as he unveiled a plan Wednesday that could give millions of young people some relief on their payments. Speaking at the University of Colorado Denver, Obama said that he and his wife, Michelle, together owed more than $120,000 in law school debt that took nearly a decade to pay off. He said that sometimes he'd have to make monthly payments to multiple lenders, and the debt meant they were not only paying for their own degrees but saving for their daughters' college funds simultaneously.

"I've been in your shoes. We did not come from a wealthy family," Obama said to cheers.

Obama said it's never been more important to get a college education, but it's also never been more expensive. Obama said his plan will help not just individuals, but the nation, because graduates will have more money to spend on things like buying homes.

"Our economy needs it right now and your future could use a boost right now," Obama said.

Obama's plan will accelerate a measure passed by Congress that reduces the maximum required payment on student loans from 15 percent of discretionary income annually to 10 percent. He will put it into effect in 2012, instead of 2014. In addition, the White House says the remaining debt would be forgiven after 20 years, instead of 25. About 1.6 million borrowers could be affected.

He will also allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them into one. The consolidated loan would carry an interest rate of up to a half percentage point less than before. This could affect 5.8 million borrowers.

Student loans are the No. 2 source of household debt. The president's announcement came on the same day as a new report on tuition costs from the College Board. It showed that average in-state tuition and fees at four-year public colleges rose $631 this fall, or 8.3 percent, compared with a year ago. Nationally, the cost of a full credit load has passed $8,000, an all-time high.

Student loan debt is a common concern voiced by Occupy Wall Street protesters. Obama's plan could help him shore up re-election support among young voters, an important voting bloc in his 2008 election. But, it might not ease all their fears.

Anna Van Pelt, 24, a graduate student in public health at the University of Colorado Denver who attended the speech, estimates she'll graduate with $40,000 in loans. She called Obama's plan a "really big deal" for her, but said she still worries about how she'll make the payments.

"By the time I graduate, my interest rate is going to be astronomical, especially when you don't have a job," Van Pelt said. "So it's not just paying the loans back. It's paying the loans back without a job."

The White House said the changes will carry no additional costs to taxpayers.

Last year, Congress passed a law that lowered the repayment cap and moved student loans to direct lending by eliminating banks as the middlemen. Before that, borrowers could get loans directly from the government or from the Federal Family Education Loan Program; the latter were issued by private lenders but basically insured by the government. The law was passed along with the health care overhaul with the anticipation that it could save about $60 billion over a decade.

The change in the law was opposed by many Republicans. At a hearing Tuesday, Rep. Virginia Foxx, R-N.C., who chairs a subcommittee with oversight over higher education, said it had resulted in poorer customer service for borrowers. And Senate Republicans issued a news release with a compilation of headlines that showed thousands of workers in student lending, including those from Sallie Mae Inc., had been laid off because of the change.

Today, there are 23 million borrowers with $490 billion in loans under the Federal Family Education Loan Program. Last year, the Education Department made $102.2 billion in direct loans to 11.5 million recipients.

[Teh One Who Knocks]

Obama said it's never been more important to get a college education...

That's it...keep perpetuating the lie :roll:

[Muddy]

I think an education is very important.

[PorkChopSandwiches]

Its not worth all these people to get loans for no purpose education. WTF are you going to do with a Liberal Arts degree? Just get a fucking job, and shine college. Unless you have a goal in mind that requires the higher education, then save your money.

Most these jobs dont even financially justify the money you put into the education, when you compare it to getting in the field and getting four years of experience first.

[Muddy]

Im going to get a degree in internet trolling.

[Acid Trip]

Im going to get a degree in internet trolling.

Shit, I thought you already had one :-k

[Muddy]

*slap_chop*

[Acid Trip]

*slap_chop*

Every time I hear slap chop I think of Hong Kong Phooey


http://www.virginmedia.com/images/hong-kong-phooey-gal-431.jpg

[Muddy]

http://www.motifake.com/image/demotivational-poster/small/0906/vince-vince-slap-chop-fail-lol-demotivational-poster-1245786416.jpg

[Acid Trip]

Hong Kong Phooey > Vince

[RBP]

That's it...keep perpetuating the lie :roll:

:hand:

College educated clerks are the backbone of the economy.

[Teh One Who Knocks]

Its not worth all these people to get loans for no purpose education. WTF are you going to do with a Liberal Arts degree? Just get a fucking job, and shine college. Unless you have a goal in mind that requires the higher education, then save your money.

Most these jobs dont even financially justify the money you put into the education, when you compare it to getting in the field and getting four years of experience first.

This ^^

And once all these morons decide to default on their loans, who do you think will be picking up the tab?


:hand:

College educated clerks are the backbone of the economy.

Bwahahahahahahahaha :lol:

[Deepsepia]

Its not worth all these people to get loans for no purpose education. WTF are you going to do with a Liberal Arts degree? Just get a fucking job, and shine college. Unless you have a goal in mind that requires the higher education, then save your money.

Most these jobs dont even financially justify the money you put into the education, when you compare it to getting in the field and getting four years of experience first.

The trouble is that the nature of student loans is fairly corrupt. They are one of the very few kinds of debt not dischargeable in bankruptcy, and where the Feds guarantee payment.

So you get a rotten complicity between schools that sign kids up for overpriced programs, walk them through the loan process, and then cash their checks.

The lenders and the schools are far more at fault than the kids.

The kids can reasonably plead to having been unaware -- the schools and the lenders know exactly what they're doing and how poor many of these kids' prospects are.

To their credit, the Obama Education department has put pressure on many of the worst offenders.

[Teh One Who Knocks]

The trouble is that the nature of student loans is fairly corrupt. They are one of the very few kinds of debt not dischargeable in bankruptcy, and where the Feds guarantee payment.

So you get a rotten complicity between schools that sign kids up for overpriced programs, walk them through the loan process, and then cash their checks.

The lenders and the schools are far more at fault than the kids.

The kids can reasonably plead to having been unaware -- the schools and the lenders know exactly what they're doing and how poor many of these kids' prospects are.

To their credit, the Obama Education department has put pressure on many of the worst offenders.

I didn't realize the students were required and forced to sign the paperwork without reading it or allowing someone else to read it and advise them :-k

[KevinD]

Well, bless my little heart...I had student loans.. Paid 'em off in fact.. In my opinion, if you are too dumb to understand the difference between a student loan and a grant or scholarship, perhaps higher education is not what you need...

[Teh One Who Knocks]

Well, bless my little heart...I had student loans.. Paid 'em off in fact.. In my opinion, if you are too dumb to understand the difference between a student loan and a grant or scholarship, perhaps higher education is not what you need...

We need to just give it up dude, personal responsibility in this country is a thing of the past.

[KevinD]

I'll never give up the good fight...I get tired of it, yes I do, and walk away for a bit sometimes, but mostly so I don't say or do something I'd later regret.

[Acid Trip]

I paid off my entire student loan balance of $43,000 in less than 3 years. Where's my reward for being responsible? Oh that's right, we only reward stupidity.

[Teh One Who Knocks]

I'm starting to feel pretty depressed now that I think about it....I missed out on a completely free college education, a free house, and free money from the government for 2 years for not working all because I was responsible.

:sad2:

[Acid Trip]

I'm starting to feel pretty depressed now that I think about it....I missed out on a completely free college education, a free house, and free money from the government for 2 years for not working all because I was responsible.

:sad2:

I guess responsibility is the new stupid. Being responsible = missing out on free shit.

:sad:

[Muddy]

Who said the college education was free? Whats wrong with a government program actually helping a fellow American... All the program does is put a cap on the rate of repayment @ 10%..

I guess some kids whose parents cant afford a college education are just shit out of luck...

Wtf guys, are you capable of any compassion for anyone?

[Teh One Who Knocks]

Wtf guys, are you capable of any compassion for anyone?

If they deserve it, yes

[PorkChopSandwiches]

The trouble is that the nature of student loans is fairly corrupt. They are one of the very few kinds of debt not dischargeable in bankruptcy, and where the Feds guarantee payment.

So you get a rotten complicity between schools that sign kids up for overpriced programs, walk them through the loan process, and then cash their checks.

The lenders and the schools are far more at fault than the kids.

The kids can reasonably plead to having been unaware -- the schools and the lenders know exactly what they're doing and how poor many of these kids' prospects are.

To their credit, the Obama Education department has put pressure on many of the worst offenders.

Hmmmm, this sounds a lot like the people who were "tricked" into home loans they couldn't afford.

[Teh One Who Knocks]

Hmmmm, this sounds a lot like the people who were "tricked" into home loans they couldn't afford.

http://i.imgur.com/f6Ysf.jpg

[Muddy]

If they deserve it, yes

These are not drug addict welfare recipients on the corner pumping out babies for free money.. These are our American kids and it is a program to help them with their education which in turn is an investment in America...

[PorkChopSandwiches]

Obama's Student-Loan Order Saves the Average Grad Less Than $10 a Month

Of the many long-term problems the U.S. economy faces, student loans are a big one. Education costs are rising very quickly and incomes aren't. As a result, students will have to borrow more and more money to obtain university degrees and will have a tougher time paying their loans. President Obama seeks to respond to this question with an executive order in the next part of his "We Can't Wait" unilateral stimulus effort. While the president's heart may be in the right place, his effort isn't like to have much impact.

The Problem: Student Loans' Crazy Growth

The cost of college is growing rapidly. That wouldn't be a problem if incomes were growing as quickly as tuition and fees. They aren't. In order to cope with the growing expense of college, more students are relying on bigger loans. The chart below demonstrates the problem pretty clearly:

http://cdn.theatlantic.com/static/mt/assets/business/student%20loans%20v%20disp%20inc%202011-q2.png

You can see that student loans have grown by 511% since 1999. Meanwhile, disposable income has grown by just 73%. As this chart also shows, most outstanding student loan debt (82%!) was accrued by students over just the past decade.

Obama's Executive Orders

The president seeks to make the situation a little bit easier for some of those graduates. He will create an executive order that has three components.

He will clear the way for borrowers with direct government loans and government-backed private loans to consolidate their balances. The White House estimates that this will cut the effective interest rate on student loans by up to 0.5%.
He will limit the amount of student loan payments to 10% of a graduate's income. (Currently, the limit is 15%.)
He will allow debt still outstanding after 20 years to be forgiven. (Currently, forgiveness occurs after 25 years.)
Those last two orders are really just the president moving up the timeline of existing legislation. Both changes are set to go into effect in 2014, but the president will order that they go into effect as of 2012.

The Impact

Let's consider the impact of each of these orders.

Consolidation

The first would clearly be the most significant, because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5% affect payments?

For the average borrower, the impact would be small. In 2011, Bachelor's degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.

Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn't going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.

Payment Limits

As mentioned, the government already has a program for borrowers to reduce their student loan payments to a ceiling of 15% of their income. At this time, just 450,000 borrowers are participating. Clearly, all of those participants would benefit from lowering the max payment to 10%. But how many others would?*

Student loan balances have really only ballooned over the past decade. So this change would affect very few Americans over the age of 32. For the young adults who it may effect, we must remember that educational attainment has some correlation to income. Those with the most debt will have attended business school, medical school, or law school. Most of those people will also have higher incomes, making them ineligible. For a person with the average student debt load, their annual income would need to be lower than $32,000** to qualify. The average income for Bachelor's degree holders aged 25 to 34 is $40,100.

Loan Forgiveness

Of all these parts of Obama's executive order, the loan forgiveness aspect will have the least impact. By moving the timeline from 25 to 20 years, it could be significant in the long run -- but it won't be felt for decades. Remember, 82% of the current student loan debt outstanding was accrued in just the past decade. So it will be at least another 10 years before any of those borrowers have hit the 20-year mark in their student loan payments.

Can an Executive Order Really Do This?

Some opponents of excessive executive power may question whether an executive order can really even accomplish these ends. The president is ordering a policy change for loan consolidation and changing the implementation date for previously passed legislation. Either of these actions could make for a really interesting court challenge, as both appear to stretch the limits of what an executive order was designed to do -- shouldn't Congress order such changes?

In practice, however, the orders will probably go through without challenge. First, it isn't clear that anyone who has standing to bring such a case to court would do so. The first measures may cost some private lenders some interest revenue, but they need to keep a conciliatory relationship with the government. The latter two measures would cost taxpayers. And even if such a challenge was brought, it could take the court a year or two to provide a final verdict. By then, unless a judge grants a temporary injunction, consolidation would already have occurred for most interested borrowers and the legislation's stated implementation date would already be past for the latter two aspects of Obama's effort.


By calling for these measures, President Obama seeks to respond directly to young Americans stressed about their student loans. Indeed, one of the vague objectives of the Occupy Wall Street movement is for student debt forgiveness. But from a practical standpoint, these executive orders won't have much of an impact. To take on the student debt problem more aggressively, the president would need some actual legislation that would shake the fundamental framework of the student loan system.

[Teh One Who Knocks]

These are not drug addict welfare recipients on the corner pumping out babies for free money.. These are our American kids and it is a program to help them with their education which in turn is an investment in America...

And how is it an "investment in America" when taxpayers will be on the hook for student loans that these kids don't want to pay? College is just like playing the stock market, sometimes you gamble right and sometimes you gamble wrong. I shouldn't be responsible for people that gamble wrong in either situation, whether it be for corporate bailouts or student loan bailouts.

Please explain to me how some kid that goes and racks up $100K+ in debt for a law degree when the US already has 3495783763346 lawyers is an investment in America? Or how some kid goes and piles up $30K in debt for a Liberal Arts degree, how is that a 'good investment'? And if they can't find a job to pay off their loans, how is that my problem?

[Muddy]

And how is it an "investment in America" when taxpayers will be on the hook for student loans that these kids don't want to pay? College is just like playing the stock market, sometimes you gamble right and sometimes you gamble wrong. I shouldn't be responsible for people that gamble wrong in either situation, whether it be for corporate bailouts or student loan bailouts.

Please explain to me how some kid that goes and racks up $100K+ in debt for a law degree when the US already has 3495783763346 lawyers is an investment in America? Or how some kid goes and piles up $30K in debt for a Liberal Arts degree, how is that a 'good investment'? And if they can't find a job to pay off their loans, how is that my problem?

I'll respond appropriately later.. I'm at work and I cant get much deeper than 2 line responses right now... Takes me a lot of time to type.

[Teh One Who Knocks]

I'll respond appropriately later.. I'm at work and I cant get much deeper than 2 line responses right now... Takes me a lot of time to type.

Hey, don't get me wrong, I'm not anti-college, if someone wants to go to school, then more power to them. But how about doing a little research on what you are getting a degree in first before putting your name on the dotted line and agreeing to all that debt? If you are dumb enough to rack up $125K for a nice fancy law degree and because you like hugging trees you decide to go work for some non-profit somewhere, I don't want to hear you whine about how you can't afford to make ends meet because of your student loans.

[Deepsepia]

Hmmmm, this sounds a lot like the people who were "tricked" into home loans they couldn't afford.

Similar, but much much worse for the borrower.

Many mortgages are "non-recourse" -- you default, the worst that happens to you is you lose your home. But even in "full recourse" state -- where you owe the deficiency if the bank forecloses and the house is worth less than you owe -- the debt is still dischargable in Bankruptcy.

Student loan debt, uniquely, are "immune" to to bankruptcy.

The government guarantees the lender that they'll get paid (the government pays if the borrower doesn't) -- and then goes after the borrower come hell, high water or bankruptcy.

This makes it a uniquely dangerous kind of debt, and you'll never hear a financial aid officer explain that to a kid or their family.

[Teh One Who Knocks]

Similar, but much much worse for the borrower.

Many mortgages are "non-recourse" -- you default, the worst that happens to you is you lose your home. But even in "full recourse" state -- where you owe the deficiency if the bank forecloses and the house is worth less than you owe -- the debt is still dischargable in Bankruptcy.

Student loan debt, uniquely, are "immune" to to bankruptcy.

The government guarantees the lender that they'll get paid (the government pays if the borrower doesn't) -- and then goes after the borrower come hell, high water or bankruptcy.

This makes it a uniquely dangerous kind of debt, and you'll never hear a financial aid officer explain that to a kid or their family.

Again, you are absolving the students of all responsibility. Why is it someone else's fault that they can't read a contract? And if they can't understand it, why are they signing it in the first place?

The fact that student loans are not dischargable thru bankruptcy is disclosed in the paperwork and it's easy to find with a quick Google search. You make it sound like these kids need to solve the quest for the Holy Grail to find these things out.

If kids are smart enough to do a bit of research before agreeing to $100K in student loans, maybe they would be better off at McDonald's or Starbucks.

[Deepsepia]

Again, you are absolving the students of all responsibility. Why is it someone else's fault that they can't read a contract? And if they can't understand it, why are they signing it in the first place?

No, I'm not "absolving them of all responsibility".

But there's a real problem with the lenders, selling a product whose failure rate they understand very well, to folks who understand it very poorly, in complicity with educational institutions which pay themselves richly.

If I'm an automaker, and I'm aware that my cars are falling apart, and I keep selling them, its not "buyer beware". You can say "caveat emptor" all you like, but we've a basic doctrine in law of "fitness for purpose" (and beyond that, many states have "lemon laws" which require that the car actually perform as promised).

In the case of student loans, lets recall that the students don't cook up these loans themselves. They walk into a financial aid office of a school, the financial aid officer lays out forms in front of them, says "sign here, sign here, sign here".

You might say "they shouldn't do that" -- but the fact is that they do.

And you can't deny that its a bit perverse for a loan that someone takes on at age 18 to follow them through bankruptcy, when a mortgage that they take on at age 40 doesn't.

Make student loans modifiable in bankruptcy and lenders, schools, student, their families and the nation would be much better off.

[Godfather]

High schools sucker kids in too... kids from 13 and up start getting grinded on to get good grades so they can make it to University, because otherwise they'll be jobless losers. Searching google or thinking about finance isn't the strong suite of kids who are given nothing but science, math and humanities homework. Half my college friends went to high schools where they didn't even learn to write career statements, CV's/resumes or apply for jobs. :wha: There definitely needs to be more comprehensive learning, not just in the trades but in day-to-day knowledge of being an adult.

You can't blame kids entirely when they've been indoctrinated.

[MrsM]

Just throwing this out there... In my experience in university, it wasn't all about what you are learning. An important lesson was how to learn and how to be independent. I got my degree in biology - I graduated and worked in my field for 2-3 years before budget cuts eliminated my job.

I needed to find work and I knew that jobs in biology were few and far between, so I looked elsewhere. Started in an entry level position in a tax field and worked my way up. My experience in university gave me the tools to be able to learn what I needed to know, even though I didn’t learn tax at school.

If people look at university as life training – then I think most will come out ok. Perhaps not in the field that they studied, but could still get a good paying job. If you go assuming that you will get a good paying job in your field and you keep holding out for that job – then prepare for failure.

[Godfather]

I totally agree Mrs. M. Only what, 15% of grads get to go to college? I'm so grateful to be one. At age 18 after high school I had no clue what I wanted or where to go next. University was a perfect stepping stone into the world, I've networked with some people who are going to be friends and allies out there for life and as ghey and cleche as it sounds I definitely figured out who I was.

I wanted to go straight into the Bank like my dad had done. He's a very successful guy and never went to University. But he refused to let me, because he sees that all of the new employees or up-and-comers taking his old jobs have degrees. In the white collar world there just isn't much room for someone without a degree anymore unfortunately.