Forgiving student loan debt … the “government” would forgive?

2013

Excerpt from the Wall Street Journal, May 10, 2013 relating information about the Obama Administration’s new proposal to forgive student loans. Read this carefully, especially the words I placed in bold.

Liliana Rodriguez-Marshall, a 30-year-old mother of three who graduated from Southwestern Law School in Los Angeles in December owing more than $300,000 in federal loans, plans to take advantage of the current program.

Without it [my debt] would be unmanageable,” she said.

Ms. Rodriguez-Marshall said she racked up the debt by spreading her degree over 4½ years from the normal three and taking out student loans to cover living expenses, which the government allows.

During her studies her husband was laid off and she twice had to take out emergency student loans totaling more than $30,000 to make home repairs, pay unexpected medical costs and keep up with the family’s $1,000-per-month health-insurance bills, she said.

She now is applying for government jobs that pay about $55,000 a year. According to a repayment calculator created by the New American Foundation, a Washington-based think tank, Ms. Rodriguez-Marshall would pay $273 per month in her first year under the program; without it, she would owe $3,562 a month. Under the program, she would pay about $102,000 over 10 years, and the government would forgive about $639,000, which includes interest.

Based on the last election, can we assume that about half of Americans see nothing wrong with this scenario? On the other hand, as a nearly 70 year old just about finished paying off college costs for four children, I’m slightly pissed. Don’t get me wrong, I see nothing wrong with student loans properly managed and repaid, but this is out of control. You don’t borrow anything you can’t repay no matter how long it takes and you have no right to do so even for something socially acceptable.

Do you get a sense of entitlement gone amuck here? Without a loan forgiveness program, her debt would be unmanageable? Are you kidding me? Of course her debt is unmanageable, but this newly minted lawyer couldn’t figure that out during the last 4-1/2 years accumulating $300,000. I wonder if it rang a bell as she applied for those $55,000 a year government jobs?

But you see, this women and many, many more like her have figured this out. They figure the “government would forgive,” which means of course average hard working Americans will forgive by paying more in taxes. This example relates to a person with a law degree, but other cases involve graduate art history majors, or any number of degrees that offer income levels without hope of paying off large debt. These people are gaming the system with the help and encouragement of the liberal crowd pushing the entitlement mentality.

Encouraging people to behave irresponsibly is wrong and eventually we are going to pay dearly both financially and perhaps more importantly as a society filled with people who see nothing wrong with simply taking what they are “entitled” to.

Do we need to do more the right way to support education, sure we do, especially in the STEM areas, but allowing irresponsible people to dream at our expense is wrong.

When I was 45 the oldest of our four children started college. We had one, two or three children in college every year for ten years in a row. My children took small loans, a couple received small grants, I used all my non retirement resources, worked in a second job, I borrowed from my 401(k), I took a home equity loan and when interest rates began to rise on the equity loan I remortgaged my home at a fixed rate. My youngest child is 38 and I have five more mortgage payments to go. I will be 70 when I am debt free. Some people would call me and my wife crazy, what did we give up to do this? We didn’t give up anything important. In fact, if one believes in reaping what one sows we have been rewarded handsomely.

2 comments

  1. The student loan forgiveness proposals are worse than you think. My understanding is that loans initiated after passage of the Student Loan Forgiveness Act would:
    Cap borrower’s monthly payments to 10% of their “discretionary income” – generally, AGI less standard deduction and personal exemption.
    Cap the number of payments at 120 – waiving any payments during periods of “economic hardship” such as where you can’t work because you need to attend the local “Occupy Wall Street” session.
    It would limit interest capitalization to 10% of the original principal amount.
    Maximum forgiveness could total up to $45,520 in principal and fees plus any accrued interest.
    Loan forgiveness would be tax free.

    So, let me get this straight:
    I want to encourage people to take out more student debt than they may otherwise need.
    I want to discourage parents from saving for their child’s education, because such assets could reduce the amount of loans the child will qualify for under this federal loan program.
    I want to discourage the child from taking a higher paying job, or at least encourage the child to minimize current reported income in years after retirement (by maxing out 401(k), 403(b) or 457 contributions, IRA contributions, maxing out benefits, etc.) so as to minimize their required payments during the repayment period.
    And, I want to forgive these debts just as these college (and graduate school) graduates are starting to reach their peak earnings years.

    Compare this, for example, to the current day “G. I. Bill” – if you want to see a lesson in how public service sacrifice is “rewarded”.

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  2. Dick, it isn’t limited to debt forgiveness.

    Let’s see if, in 2013, we can again beat “pension ploughshares” into “student loan swords”. Will history repeat itself… stay tuned this month.
    Just a year ago, Congress was banging around looking for a source of funds to deliberately depress the interest rates on student loans. We are here again.
    Last year, on June 27th, the Washington Post reported: “The (student loan interest rate cap) extension would be paid for by raising premiums for federal pension insurance, an idea acceptable to businesses because rules on how companies calculate their pension liabilities would be changed. A senior Democratic aide said the pension proposals, which came from Reid, would generate $5.5 billion.”
    So, we fund the lower interest rates on student loans, by discouraging funding of corporate pension plans so they will be less well funded (reversing or delaying the changes from the Pension Protection Act of 2006), and placing pension benefits at greater risk in the hope that companies will contribute less, and that the reduction in funding will lessen the loss of tax revenue (as such contributions are usually tax deductible). At the same time, because of the increased risk to the Pension Benefit Guarantee Corporation, we raise PBGC premiums.

    Three weeks earlier, on June 7, 2012, Harry Reid sent a letter to John Boehner and Mitch McConnell, specifically stating, in part:
    . “Under current law, the unusually low interest rates over the past few years will result in substantial increases in pension contributions for 2012. … (the proposed more flexible pension funding approach) would narrow fluctuations in computing pension contributions and result in business taking fewer tax deductions for contributions. … In addition, there has been bipartisan support for increasing premiums paid by employers for the insurance provided by the Pension Benefit Guarantee Corporation. … To help improve the PBGC’s finances, these premiums could be increased as part of this proposal… The combination of these two proposals will provide sufficient resources to fund both a one-year extension of the current student loan interest rates and reauthorization of the nation’s surface transportation program.”
    As I noted in a June 27 email to the American Benefit Council, with a copy of that Reid letter, “… Was an increase in PBGC premiums part of this deal – and if so, was the increased premium limited to an increase in the variable premium charged to underfunded plans that are getting the relief from funding?…”
    Nope. Sure enough, on July 6, 2012, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act (MAP-21) – increasing PBGC premiums NOT on underfunded plans subject to the variable premium who would be expected to reduce their contributions following the new funding relief, but on all plans, including well-funded pensions from $35 to $42 per participant.
    In part, we’ve seen the result, as more and more plans, well funded or not, pursue pension liability mitigation/migration strategies, in part to avoid the increased PBGC premium.
    As I mentioned in my note to ABC, I have concerns about employers who have had the discipline to properly fund their plans.”

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