If you think about it, the answer is quite obvious: both are nationwide crisis with governmental programs meant to help that utterly fail because the private sector meant to administer the cure can’t do its job…PERIOD!
Once again the Huffington Post nailed it with its latest article: Education Department Lets Borrowers Default On Student Loans, Ignoring Helpful Alternatives.
It’s what I’ve said for years, the Dept of Ed (ED) refuses to publicize a program that would in deed lead to economic growth. That program? Income Based Repayment, better known as IBR.
It’s self explanatory – a repayment plan based on income. The article also talks about two other income based plans, ICR (Income Contingent Repayment) and PAYE (Pay as You Earn). Only graduates from 2012 on qualify for PAYE, thus not a huge deal…yet. ICR is useless because IBR is always cheaper, though it is still needed for those who have Parent PLUS loans (those loans don’t qualify for IBR).
Lets talk about some highlights in the article. Chris Greene, with ED has a wonderful quote, ““First, borrowers entering default are likely at very different points in their repayment lifecycle than borrowers entering IBR or Pay As You Earn,” Greene said. “Second, borrowers default for different reasons, and not every borrower that defaults is eligible for the Income-Based Repayment Program or the Pay As You Earn program.” How do I comment nicley? How about, “Oh Poppycock!” It doesn’t matter where a borrower is in the repayment lifecycle, IBR is always an option! As for different reasons for default, I can tell you from my experience there is only one reason – the payments offered are unaffordable (no one tells these folks about IBR). Of all the people I’ve worked with, only two didn’t qualify for IBR; both because they had 6-digit incomes with a loan balance under $20,000. Chris Greene must be on someone’s payroll besides ED; his response is simply unacceptable.
Greene, unfortunately, keeps opening his mouth, “No one repayment plan is appropriate for every borrower,” he said. “As a result, the number of borrowers in a given repayment plan is not necessarily indicative of servicer performance.” I disagree. I think the number of people NOT in IBR and instead in forbearance or deferment is VERY indicative of a servicer’s performance. Honestly, why does anyone need an unemployment deferment when their IBR payment would be ZERO?!
Lets look at this from an economic standpoint, for those disgusted with the idea that people aren’t paying their fair share. Forget the moronic argument that people who can’t afford college shouldn’t go. Hello, why do you think federal aid was created in the first place? And what does an uneducated population do for us anyway? If we want America to get back to where we used to be, we need an educated workforce.
Now then, lets talk about why IBR is GREAT for the economy. If people are paying based on a percentage of their income, they should have left over cash. What do they spend that on? Big ticket items like houses, cars, travel, home improvements, etc. And then there are small ticket items like dinning out, movies, consumer electronics, etc. Maybe even clothing and food. Or how about dance classes for the kids, girl scout cookies from the neighbor, or charitable donation to the numerous good causes that exist. How much better would the Winter Holiday Shopping season be if people had cash because their student loans were taken care of? America survives on consumers…no consumers, no economy.
For the fiscal conservatives, stop comparing college to an ordinary consumer purchase. If it were sold the same way, I might be ok with it. But compare college to buying a car. When you walk into a dealer, the first thing they do is qualify you – how much can you spend a month. Could you imagine college shopping like that? Walk into the admissions office, fill out a form that asks what you’d like your post graduate college loan payment to be? “Um, I’m sorry Mr. Cohen, but you can’t afford our university. In order to get a loan payment that low…well I’m not sure you’ll ever get a payment that low. And of course there is no guarantee you’ll get a job that will pay you enough.”
It’s a long way off before the student loan crisis is dealt with. But until then, IBR is the best tool out there. My suggestion? Cut the budget to servicers and debt collectors, spend that money on a pubic relations campaign to let America know IBR is out there. Don’t run from your student loan payment – embrace it, because it’s the only bill you’ll ever have based on your income.