The way student loans work in America since the Obama administration is that the Federal Government 'owns' the debt, and it allows you to pay it off according to an income-based formula that is meant to determine what you can afford. You pay a percentage of your income in other words, not anything like what it would take to pay off the debt on the 20 year timeline; after 20 years, the government will write the rest of it off. If you work for a 'public service' like the Federal government itself, or any government or nonprofit, it's 10 years.
So a $10,000 forgiveness does nothing. Since you're already not paying off the interest -- you're paying much less than it would take to clear the debt -- the $10,000 is going to come right back over time anyway. Yet you won't have to pay it off, not before this decision and not after. In 20 years -- 240 monthly payments -- you can walk away from it, or only 120 if you work for an approved industry.
If you really want to help borrowers, either forgive the whole thing or else let for-profit employees off after 10 years too. (It's their employer that is for-profit or nonprofit, after all: there's no moral difference in the employees.) If you want the money, you have to change the payment schedule to a level that many people simply can't afford; then you still won't get the money, but you will at least get to seize whatever they have. If you want just more money, eliminate the nonprofit distinction the other way and make those employees pay for 20 years instead of 10.
What's going on here doesn't make any actual sense at all. It's not clear who they're hoping to impress: hopefully the people who went to college to incur the debt have enough math to see this is a bunch of bull.
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Since you're already not paying off the interest -- you're paying much less than it would take to clear the debt
I thought that Obama actually raised the rate by two full points--which points would then go toward offsetting the costs of SparkleFartCare. In cases with which I am familiar, that brought the rate to 8% or so, and that was effective quite some time before CoVid.
It doesn't matter what the rate is, because you're not paying off the debt. You're paying 10-15% of your "discretionary" income, whatever that is, on Income Based Repayment; or even less on Pay as You Earn or other programs. You'll never pay it off, so it can be whatever. After 240 payments, the debt is forgiven (except, of course, that the IRS gets to charge you taxes on the forgiven debt as if it were income - so you pay a percentage of that, too, as income tax).
If I'm following the math, this forgiveness will have an effect for people who owe less than $10,000 - their debt will be completely gone and no interest will accrue to build it back up again.
For people owing more than $10,000, there will be debt left and it will continue to accrue interest but the principal will be less and thus less interest will accrue. It seems there must be a break point if you will, where the forgiven $10,000 will be more than the interest that will accrue on the remaining principal before it's paid off. For those people, too, the debt forgiveness will be a net gain.
In both cases, this effect will be greater because reportedly the IRS will not count Biden's $10,000 forgiven debt as income. If that is the case, the forgiven debt will also help people who owe more than the break point amount since the total forgiven after 20/10 years will be less than it would have been and so less income tax will be owed.
What I think is going to be a shock is that even after forgiveness, a debtor's payments will not decrease unless he or she owed less than $10,000. So the people in the sob stories who are "drowning" in six-figure debt will not be any better off. (Although there is something about a 5% cap floating around out there in which case payments will decrease.)
Yeah, that's fair. For those whose debts were so small that they could easily be repaid, it might be helpful. For those who are actually crippled up by the way the US Government has exploded tuition costs via these loans, it won't do anything useful at all.
I imagine the hope is that people with huge debt will not figure that out until after the mid-terms.
I'm not fond of the idea of 'public service' in this context. Is working for a 'nonprofit' and writing papers about agricultural policy any more public service than is being a farmer who grows food, or a trucker or railwayman who hauls it to market?
Yes, exactly. The distinction is purely tribal: 'our people' work at nonprofits, 'their people' grow food or drive trucks. But whether the business is classified as for profit or non-profit, the employee is just trying to feed their family and such.
Tribal. Exactly. Set up the system so that "our" kids are more likely to have good jobs for generations.
Charles Cooke at NRO gave a whole litany of reasons why this is also a politically dumb decision using the 'pluck yew' metaphor.
I'm going to take it as a good sign. This benefits nobody but the core Democrat constituency of largely white aspirants to the upper middle class. If the Democrats are so worried about the 2022 midterms that they have to risk jettisoning every non-college graduate (at least 50% of the population) along with many who who have degrees but no forgivable student loan debt, POC or not, then their polling must indicate they are headed for a real blood bath in November.
A further note, I don't think I've ever seen an 700+ comment thread on NRO that didn't have a single mention of Trump and was so united in objection to a government action. With Trump not on the ballot, Biden just handed every GOP candidate something that could likely unite the entire party behind them.
We have made slaves of our children. They are indebted servants in the ruins of the nation their forefathers owned. While were spending trillions to enrich oligarchs and blowing up the dollar anyway, it would be nice if any of that actually ended up in the hands of actual Americans.
"(It's their employer that is for-profit or nonprofit, after all: there's no moral difference in the employees.)"
"Yes, exactly. The distinction is purely tribal: 'our people' work at nonprofits, 'their people' grow food or drive trucks. "
Answered your own question. That's exactly why they included non-profits- that's their primary device for their political activists to elude taxes, and it was a sop to them.
I see you addressed that in comments a couple posts up.
No matter. There’s plenty to be gained by seeing we agree.
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