Obama's implications on education and student loans

[willrocks]

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A quote from last night's State of the Union:

"When we renew the Elementary and Secondary Education Act, we will work with Congress to expand these reforms to all fifty states. Still, in this economy, a high school diploma no longer guarantees a good job. I urge the Senate to follow the House and pass a bill that will revitalize our community colleges, which are a career pathway to the children of so many working families. To make college more affordable, this bill will finally end the unwarranted taxpayer-subsidies that go to banks for student loans. Instead, let's take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants. And let's tell another one million students that when they graduate, they will be required to pay only ten percent of their income on student loans, and all of their debt will be forgiven after twenty years - and forgiven after ten years if they choose a career in public service. Because in the United States of America, no one should go broke because they chose to go to college. And it's time for colleges and universities to get serious about cutting their own costs - because they too have a responsibility to help solve this problem."


Note the line that states students will pay 10 percent of their income on loans and all loans unpaid after 20 years will be forgiven, 10 years for those in the public service. Does work as a pharmacist count as a public service job? Are any of these claims already in place, or is this what Obama is working towards?

Just a quick question, no need to debate Obama's policies.

 

[deleted205891]

This has been discussed before a little here. I think federal pharmacists (VA, IHS, etc...) count.

 

[BMadjuster]

This has been discussed before a little here. I think federal pharmacists (VA, IHS, etc...) count.

http://www.finaid.org/loans/publicservice.phtml

State jobs would fall under this too, so if you worked for the dept of corrections for your state or for the board of pharmacy, etc.

 

[IshDiandra]

Oh! I only heard about this because fastweb sent me an email about their article on it. Haha I don't watch tv too much. But here's the article in its entirety since you wouldn't be able to read it if you don't have an account with them.

President Obama proposes to cap student loan payments at 10% of discretionary income as part of a package of proposals outlined by the White House Task Force on Middle Class Families on January 25, 2010. Debt would also be forgiven after 20 years in repayment.

This proposal would enhance the income-based repayment plan which was enacted by Congress as part of the College Cost Reduction and Access Act of 2007 and which became effective on July 1, 2009. Income-based repayment bases monthly payments on federal student loans on the borrower’s discretionary income, not the amount they owe on their student loans. Income-based repayment currently caps student loan payments at 15% of discretionary income and forgives the remaining debt after 25 years in repayment. Discretionary income is defined as the amount by which adjusted gross income exceeds 150% of the poverty line.

The changes to help middle class families will be proposed as part of the President’s federal budget for the fiscal year starting October 1, 2010 (FY2011). It is possible that the changes to income-based repayment could be implemented sooner by adding them to the Student Aid and Fiscal Responsibility Act, which passed the House of Representatives in 2009 but is still pending in the Senate.

This proposal would yield meaningful repayment relief to hundreds of thousands of borrowers whose federal student loan debt exceeds their income. It would cut their monthly payments by an additional one third and forgive the remaining debt sooner. For example, a borrower with $40,000 in federal student loans and an adjusted gross income of $30,000 a year could see their monthly payments drop from $172 in the current income-based repayment plan to $115 a month. This compares with the monthly payment of $460 under standard ten-year repayment and $278 under extended 25-year repayment. The acceleration of the loan forgiveness will ensure that borrowers are not still paying back their own federal student loans when their children enroll in college.

Income-based repayment is available to borrowers in both the Direct Loan and federally-guaranteed student loan programs. It may be used with Stafford, Grad PLUS and consolidation loans, but not with private student loans, Parent PLUS loans or consolidation loans that repay Parent PLUS loans.

Unfortunately, under current law the loan forgiveness is treated as taxable income, except for borrowers who qualify for public service loan forgiveness. (Borrowers who repay their loans in the Direct Loan program and work full-time in public service jobs get forgiveness of the remaining loan balance after 10 years.)

For further information, please see the White House Press Release and Fact Sheet. See FinAid for information about the current income-based repayment program.

 

[Chuck61686]

If someone does not pay back their loan in its entirety, guess where the burden goes? To other taxpayers. Thanks Obama, another way to "spread the wealth around" 🙄

I should've maxed out my student loans, it's literally free money. No need to be frugal and take out only $8.5k each year for three years.

 

[RX CARE]

If someone does not pay back their loan in its entirety, guess where the burden goes? To other taxpayers. Thanks Obama, another way to "spread the wealth around" 🙄

I should've maxed out my student loans, it's literally free money. No need to be frugal and take out only $8.5k each year for three years.

Yes indeed. And that's why bright minds are left behind because of the fear of not being able to afford a college education, and yet you would still complain as to why other first world nations are more advanced than we are or why innovation is slowly implemented here compared to abroad. Max out on your student loans...it is indeed free money🙄. I don't remember the last time republicans complained about pell grants being a burden to the tax payer....better yet, I guess low income or middle class haters of Obama would prefer not to receive pell grants as it is a burden on the tax payer, and they would be quite content paying more for college....🙄🙄

 

[Chuck61686]

Yes indeed. And that's why bright minds are left behind because of the fear of not being able to afford a college education, and yet you would still complain as to why other first world nations are more advanced than we are or why innovation is slowly implemented here compared to abroad. Max out on your student loans...it is indeed free money🙄. I don't remember the last time republicans complained about pell grants being a burden to the tax payer....better yet, I guess low income or middle class haters of Obama would prefer not to receive pell grants as it is a burden on the tax payer, and they would be quite content paying more for college....🙄🙄

Do the math and you'll notice that if you took out $50k/year x 8 years (college + grad school), made the minimum payments over 10 years (at which point it could be forgiven), then you'll have a very handsome profit on your hands, complements of your fellow taxpayers. That's in ADDITION to a doctorate degree that gives you the ability to earn 6 figures, which most taxpayers don't make half of!

Education is an investment, perhaps the best investment you can make. It's something that can't be taken away and it literally appreciates value the rest of your working career. Education is what endows you with the ability to earn an income several times greater than that of your subordinates. If you don't want big loans then you are free to work a job that requires a HS diploma.

Spending money on education is a completely different investment than buying a car or a house. Go buy a $30k car and it'll be worth HALF it's value in about 4 years. That same amount buys a year of tuition in pharmacy school, after which you'll be able to earn a career income 7 figures greater than if you mopped floors the rest of your life.

 

[Chuck61686]

Yes indeed. And that's why bright minds are left behind because of the fear of not being able to afford a college education, and yet you would still complain as to why other first world nations are more advanced than we are or why innovation is slowly implemented here compared to abroad. Max out on your student loans...it is indeed free money🙄. I don't remember the last time republicans complained about pell grants being a burden to the tax payer....better yet, I guess low income or middle class haters of Obama would prefer not to receive pell grants as it is a burden on the tax payer, and they would be quite content paying more for college....🙄🙄

Other first world nations? You mean the ones with higher taxes? Go ahead and move to one of those nations with cheaper education. Your taxes will make up for the difference very quickly. In France, Germany and Belgium the mean personal income tax rate is GREATER THAN 50%!

 

[Marcus X]

Do the math and you'll notice that if you took out $50k/year x 8 years (college + grad school), made the minimum payments over 10 years (at which point it could be forgiven), then you'll have a very handsome profit on your hands, complements of your fellow taxpayers. That's in ADDITION to a doctorate degree that gives you the ability to earn 6 figures, which most taxpayers don't make half of!

Education is an investment, perhaps the best investment you can make. It's something that can't be taken away and it literally appreciates value the rest of your working career. Education is what endows you with the ability to earn an income several times greater than that of your subordinates. If you don't want big loans then you are free to work a job that requires a HS diploma.

Spending money on education is a completely different investment than buying a car or a house. Go buy a $30k car and it'll be worth HALF it's value in about 4 years. That same amount buys a year of tuition in pharmacy school, after which you'll be able to earn a career income 7 figures greater than if you mopped floors the rest of your life.

I'm certainly no where near 100% sure on this, but isn't the standard "minimum payment" calculated on a 10-year repayment. At least for my undergrad loans it was. The minimum payment was such that it would be paid off in 10 years.

 

[genesis09]

I'm certainly no where near 100% sure on this, but isn't the standard "minimum payment" calculated on a 10-year repayment. At least for my undergrad loans it was. The minimum payment was such that it would be paid off in 10 years.

The number of years depends on the amount you owe. For me, the standard repayment option is a 20 year repayment plan.

 

[UArk2014]

Other first world nations? You mean the ones with higher taxes? Go ahead and move to one of those nations with cheaper education. Your taxes will make up for the difference very quickly. In France, Germany and Belgium the mean personal income tax rate is GREATER THAN 50%!

No. It is not.
http://www.worldwide-tax.com/index.asp#partthree

 

[Chuck61686]

No. It is not.
http://www.worldwide-tax.com/index.asp#partthree

Considering the sales tax rates, petrol taxes, and food taxes those numbers are close enough to 50%.

Point: They pay more in income tax and sales tax. I won't even get into the tax on petrol and food.

 

[RX CARE]

Other first world nations? You mean the ones with higher taxes? Go ahead and move to one of those nations with cheaper education. Your taxes will make up for the difference very quickly. In France, Germany and Belgium the mean personal income tax rate is GREATER THAN 50%!

Exactly my point if you think about !! Why can't we get on their level if we as taxpayers in the US can afford to advance our society without paying as much tax as they are paying?! Take a look at our GDP, which is the largest in the world, and take a look at the 2nd largest GDP in the world which is japan, and tell me how many fold lower it is. But we are not as efficient and innovated as other developed nations in major areas....even in healthcare. If I remember exactly, the proposal wasn't to raise taxes by 50%, it was to forgive the debt after 20 years, which would or could be reasonable because people get pell grants for absolutely free. By year 20, the government would have at least recovered half of it's money. But your complaint is about spreading the wealth....but no one is asking to raise your taxes. That's a selfish way to look at it if you don't want to look at the big picture to see how it would help advance our nation in innovation....🙂

 

[Chuck61686]

I'm certainly no where near 100% sure on this, but isn't the standard "minimum payment" calculated on a 10-year repayment. At least for my undergrad loans it was. The minimum payment was such that it would be paid off in 10 years.

Under Obama's proposal student loan payments would be capped at 10% of discretionary income. Discretionary income is the amount of money you have after paying taxes and essential living expenses. Now, let's do some math:

Mr. X takes out $60k in student loans each year over 8 years (4 yrs undergrad + 4 yrs grad school). This number comes from his 35k tuition + fees, 3k health insurance, 10k room & board, 5k groceries, 3k car expenses, and the other 4k from things like spring break trips to Cancun, Long Island Iced Teas on Friday nights, you get it. So his total expenses for this 8-year endeavor amount to $480k. He graduates and goes on to make 100k/year at the VA hospital as a pharmacist. After taxes and essential living expenses his discretionary income is $50k/year. According to Obama, only 10% of this income goes towards his loan (which is nearly half a million dollars). After 10 years the loan is forgiven and he has only paid back $50k (10 x 10% of $50k = $50k).

Mr. X just cheated his fellow tax payers out of $430,000 (PLUS INTEREST)...and he'll continue to live comfortably on a 6-figure income.

 

[Chuck61686]

Exactly my point if you think about !! Why can't we get on their level if we as taxpayers in the US can afford to advance our society without paying as much tax as they are paying?! Take a look at our GDP, which is the largest in the world, and take a look at the 2nd largest GDP in the world which is japan, and tell me how many fold lower it is. But we are not as efficient and innovated as other developed nations in major areas....even in healthcare. If I remember exactly, the proposal wasn't to raise taxes by 50%, it was to forgive the debt after 20 years, which would or could be reasonable because people get pell grants for absolutely free. By year 20, the government would have at least recovered half of it's money. But your complaint is about spreading the wealth....but no one is asking to raise your taxes. That's a selfish way to look at it if you don't want to look at the big picture to see how it would help advance our nation in innovation....🙂

Sorry, I think my post came across the wrong way. I was just comparing our country to other countries with higher taxes where education is cheaper.

My complaint stems from the fact that Obama's loan foregiveness proposal is too lenient (see my previous post with the Mr. X example). I do agree that the cost of education is outrageous, but under this proposal, if loans are foregiven who ultimately pays the price? The taxpayers. Our national deficit is just too much for such a proposal. Instead of forgiving loans how about only capping re-payment at 10% of discretionary income? (With no expiration on the loan). At least that way the government still gets the money re-paid while the person taking out the loan still has enough money for essential living expenses. Asking for only 10% of discretionary income to pay back a loan is being very generous.

 

[Marcus X]

Under Obama's proposal student loan payments would be capped at 10% of discretionary income. Discretionary income is the amount of money you have after paying taxes and essential living expenses. Now, let's do some math:

Mr. X takes out $60k in student loans each year over 8 years (4 yrs undergrad + 4 yrs grad school). This number comes from his 35k tuition + fees, 3k health insurance, 10k room & board, 5k groceries, 3k car expenses, and the other 4k from things like spring break trips to Cancun, Long Island Iced Teas on Friday nights, you get it. So his total expenses for this 8-year endeavor amount to $480k. He graduates and goes on to make 100k/year at the VA hospital as a pharmacist. After taxes and essential living expenses his discretionary income is $50k/year. According to Obama, only 10% of this income goes towards his loan (which is nearly half a million dollars). After 10 years the loan is forgiven and he has only paid back $50k (10 x 10% of $50k = $50k).

Mr. X just cheated his fellow tax payers out of $430,000 (PLUS INTEREST)...and he'll continue to live comfortably on a 6-figure income.

Mr. Obama's quote doesn't say anything about "discretionary" income. It simply says "income". Admittedly, it's still a significant amount of money that will likely be foisted off on the taxpayers, but you should be fair to the actual statement.

 

[CUninja]

Sorry, I think my post came across the wrong way. I was just comparing our country to other countries with higher taxes where education is cheaper.

My complaint stems from the fact that Obama's loan foregiveness proposal is too lenient (see my previous post with the Mr. X example). I do agree that the cost of education is outrageous, but under this proposal, if loans are foregiven who ultimately pays the price? The taxpayers. Our national deficit is just too much for such a proposal. Instead of forgiving loans how about only capping re-payment at 10% of discretionary income? (With no expiration on the loan). At least that way the government still gets the money re-paid while the person taking out the loan still has enough money for essential living expenses. Asking for only 10% of discretionary income to pay back a loan is being very generous.

Your statements are misleading. Please see below.

1) The current program went into effect in October 2007 during the presidency of George W Bush.

2) The current program only forgives Federal Direct loans. These loans are tied to cost of attendance. Thus, each school sets their own cost of attendance, which you mentioned below. This does not include groceries, which are included in room and board, nor does it include car expenses or your spring break trips. You theoretically could take out a private loan for these other expenses, one which would not be forgiven after 10 years. You must also remember that scholarships reduce your need, which directly reduces the amount in loans you can take out.

3) You would be hard pressed to find a pharmacy student that has racked up $450,000 in FEDERAL student loans. Even at the most expensive schools, this number is more in the neighborhood of $250,000. The most expensive pharmacy school has a out-of-state tuition under 40,000. Very few people will pay this much in tuition, many are in state students. See this link. http://www.aacp.org/resources/student/pharmacyforyou/admissions/Documents/PSAR1011_Table11.pdf

4) http://www.finaid.org/calculators/ibr.phtml This link is a calculator for IBR student loan forgiveness. With salary of 100,000, salary growth of 2%, unsubsidized loans of 125,000, subsidized loans of 125,000 (total govt loans = 250,000), you have a payment of just over 1,000.00 per month for 10 years. You end up paying just interest on that loan sum. Taxpayers end up paying roughly 260,000 (with interest INCLUDED) in the end. So you end up paying over $12,000/year back.

5) The aggregate limit on non-grad plus loans is 138,500. The rest must be PLUS loans, which do not have an aggregate limit, but are limited to the cost of attendance minus other loans/scholarships.

 

[rphello]

And let's tell another one million students...

Doesn't this qualifier suggest that the debt forgiveness will most likely be income based? It's not open ended.

Many of us can't even deduct student loan interest. What makes you think our loans will be forgiven?

 

[museabuse]

Doesn't this qualifier suggest that the debt forgiveness will most likely be income based? It's not open ended.

Many of us can't even deduct student loan interest. What makes you think our loans will be forgiven?

Exactly, if your single and a pharmacist the government thinks your rich even if you have over 200k in student loans. I bought a house this year but don't get the 8000 dollar tax credit because I make too much. So with my house payment and student loan payment that barely leaves me enough money, I am trying to save my 6 month 'cusion' and at this rate it's going to take me 7 To 10 years to save 50k.

 

[Ackj]

Doesn't this qualifier suggest that the debt forgiveness will most likely be income based? It's not open ended.

Many of us can't even deduct student loan interest. What makes you think our loans will be forgiven?

Exactly, this is most likely going to help families who are already receiving some kind of government aid, because the cutoff is going to be extremely low. My parents are nowhere near wealthy, and in undergrad I got a whopping $200 a year in financial aid (from NYS, not even federal), and $3k in Stafford loans. So they pretty much covered my books and parking permit.

Of course now that I'm a grad student they'll let me have 60k/yr in loans, because I'm a rich pharmacist who can pay all of that back to them within a year or two 🙄

 

[Chuck61686]

Exactly, if your single and a pharmacist the government thinks your rich even if you have over 200k in student loans. I bought a house this year but don't get the 8000 dollar tax credit because I make too much. So with my house payment and student loan payment that barely leaves me enough money, I am trying to save my 6 month 'cusion' and at this rate it's going to take me 7 To 10 years to save 50k.

If you owe over 200k in student loans, why buy a house? 😕

 

[museabuse]

If you owe over 200k in student loans, why buy a house? 😕

I only owe 130k but for a couple hundred more per month i could own instead of rent, seemed like a good idea. I guess i could live in a 1 room studio in a crappy neighborhood for a lot less, but would rather live in a good neighbor hood and it seemed like a good time to buy..

The point was though no matter what student loan deductions or incentives or forgiveness the government institues doesn't matter if you have a job as a pharmacist because the government thinks you are rich and you won't qualify.

 

[type b pharmD]

I only owe 130k but for a couple hundred more per month i could own instead of rent, seemed like a good idea. I guess i could live in a 1 room studio in a crappy neighborhood for a lot less, but would rather live in a good neighbor hood and it seemed like a good time to buy..

The point was though no matter what student loan deductions or incentives or forgiveness the government institues doesn't matter if you have a job as a pharmacist because the government thinks you are rich and you won't qualify.

Well if you're around or above the top 5% of incomes , it probably seems statistically appropriate to designate you "rich".

 

[confettiflyer]

Jesus juice you guys...it's a speech, it probably won't happen. In fact, since Obama said it...it probably WON'T happen at all. Now that republicans have a 41 seat majority in the house (+1 if you get the joke), 10% of discretionary income isn't gonna happen.

BUT there is a current payment/debt cancellation plan in effect, it was discussed at length in another thread.

Also, don't forget.... assuming tax laws remain the same, the hypothetical student Chuck talked about (who had $430k forgiven) still owes federal tax on that amount as ordinary income as that will probably get 1099'd off. That tax bill would be enough to send me into bankruptcy or at least put me on a payment plan for a few years. Granted, I'd rather do a payment plan on the taxes than pay for the entire balance due.