Archive for the ‘Student Loans’ Category

Why aren’t more people upset about Biden’s college loan giveaway?

September 22, 2022

Simple answer: Majority of Americans aren’t getting stuck with the bill.
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There are lots of principled reasons for opposing Biden’s student loan giveaway.

Most notably, the Executive Order is unconstitutional (especially now that Biden has publicly declared that the pandemic is over) … the plan is unfair to people who didn’t attend college, who worked to pay their way through college or paid off their loans as previously required … and income tax payers have to pick up the trillion dollar tab.

So why does it appear that the program will actually be enacted?

Why isn’t there more of an uproar?

Well, for openers, about 23 million potential voters benefit from Biden’s largesse and may demonstrate their thanks at the polls in November.

But, 23 million is a relatively small number of beneficiaries.

A bigger number is 100 million.

That’s the number of people who haven’t paid any income taxes in the past couple of years.

According to a Tax Policy Center analysis of IRS data, in 2021, only 43% of Americans paid any Federal income taxes.

Conversely, a majority — 57% — paid no Federal income taxes.

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Tax Policy Center

So, except for fairness principles — why should the 57% get worked up over a tax payer funded program?

They won’t be paying the bill…

It’s somebody else’s problem.

It’s as simple as that!

Forget the $10,000, it’s Biden’s repayment plan that’s the killer.

August 31, 2022

Great analysis by William Gsldton  in today’s WSJ
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Galston writes:

A largely neglected dimension of Mr. Biden’s order changes to the program allowing borrowers to repay their loans as a percentage of their discretionary income over a fixed period (“income-directed repayment,” or IDR).

That provision might prove even more consequential (than the $10,000 loan forgiveness).

The president has:

  • Increased the amount of annual earnings not counted as discretionary income by about $30,000
  • Reduced monthly payments from 10% to 5% of what does count as discretionary income
  • For borrowers with original loan balances of $12,000 or less, Biden has reduced the repayment period from 20 years to 10
  • For borrowers whose payments are too small to cover interest as well as principal, the unpaid interest will no longer be added to the loan balance.
  • At the end of the 10 years, the loan balance is written off.

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The results will be dramatic.

The average starting salary for students with two years of community college is less than $35,000.

That means that loan payments will be based on only $5,000 of discretionary earnings.

So, the monthly payment is less than $25, including interest.

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So what?

“Through the back door, the president will come close to fulfilling his promise to make the first two years of community college free, and almost all borrowers in this category will be debt-free after 10 years.”

That may be a good thing, but…

The repayment plan applies to all students (current and future) with Federal loans,

Accordingly, the Penn-Wharton model suggests that this feature of the president’s program could cost as much as $450 billion over the next decade.

That’s more than the estimated cost of the $10,000 loan forgiveness … and raises the total cost of Biden’s program to a trillion dollars.

All with the stroke of a pen…

Ouch.

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Flashing back, Galston noted that his 1963 annual tuition at Cornell was $1,700 … and that students attending Ohio State were grousing about paying $375 annually.

Update: Taxing Biden’s election year loan forgiveness gambit…

August 30, 2022

When Biden’s plan was announced I calculated:

An average student loan holder will see their monthly student loan payment go down a whopping $55 … adding about 2 bucks-a-day to their disposable income … about a Starbucks frappe every week.

Enough to matter?

You decide.

For details see: Dumb and dumber looks even dumber when you dig into the details

I also asked a question that I hadn’t heard or read anywhere: What about the income tax implications?

You see, according to the IRS:

IF you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.

So, at a 15% income tax rate (the lowest bracket), a Biden loan forgiveness recipient might be getting a $1,500 tax liability … for the 2022 tax year.

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A couple of loyal readers reminded me that:

Last year, the American Rescue Plan precluded any federal taxation of student-loan cancellation through 2025.

Nuts!

But, I was on the right track.

A WSJ op-ed advises that state lawmakers can tax the windfall.

New York, for one, is choosing to tax student-loan forgiveness. All in all, it appears 13 states are primed to follow NY’s lead on taxing debt relief.

  • Arkansas
  • Hawaii
  • Idaho
  • Kentucky
  • Massachusetts
  • Minnesota
  • Mississippi
  • Pennsylvania
  • South Carolina
  • Virginia
  • West Virginia
  • Wisconsin

The author points out that the above states “could mitigate some of Biden’s unfair stimulus by using the revenue (from taxing the forgiven loans) to give one-time tax rebates to residents who didn’t attend college or paid off their student loans.”

Not a full loaf, but better than nothing ….

WaPo: “Biden’s student loan plan is a regressive, expensive mistake”

August 26, 2022

OMG: For once, I agree with the Washington Post
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The reliably left-lurching Washington Post scorched Biden’s vote-grabbing student loan scheme in an editorial and op-ed.

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Editorial   Op-ed

Here are the highlights from the WaPo pieces with interspersed observations from an opinion piece in the left-leaning Daily Beast

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What crisis?

In court pleadings regarding Title 42 immigration policies, The Biden Administration declared the COVID pandemic to be over.

The Biden Administration has claimed that “inflation is zero” and that this is the healthiest U.S. economy ever.

In fact, the unemployment rate for people with bachelor’s degrees and higher is just 2%.

So, it’s hard to make the case that college graduates are still facing an unprecedented (financial) crisis.

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Is it fair?

Widely canceling student loan debt is regressive.

It takes money from the broader tax base, mostly made up of workers who did not go to college, to subsidize the education debt of people with (supposedly) valuable degrees.

It benefits a relatively small, affluent group of voters.

A minority of Americans have college degrees, they are higher earning and less-often unemployed than their fellow countrymen.

It takes the willingly acquired debt of some and makes it a liability of those who did not take it on … while offering nothing in mortgage relief, car loan relief, credit-card debt relief, or small-business loan relief.

It makes suckers of everyone who recently paid off their college loans or decided not to acquire them in the first place.

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At what cost?

Secretary of Education Cordona told CNN that he didn’t know because: “The projections are still coming out.”

But based on think tank estimates, this Executive Action will cost the federal government somewhere between $400 billion and $600 billion, completely unpaid for.

These policies would nullify $305 billion of (dubious) deficit reduction from the Inflation Reduction Act.

According to  Jason Furman, formerly the top economic adviser to President Barack Obama:

“It will pour roughly half [a] trillion dollars of gasoline on the inflationary fire that is already burning,”

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Is the Executive Order legal?

It’s doubtful that the 1965 Higher Education Act grants the president the legal authority to take such a sweeping step.

And, as cited above, the Biden Administration itself has already pleaded in Title 42 court arguments that COVID is over.

So, it’s tenuous that the administration can claim that the Administration’s argument that the loan forgiveness is a “pandemic emergency”.

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What’s the bottom line?

According to the Washington Post:

“Mr. Biden’s student loan decision will not do enough to help the most vulnerable Americans. It will, however, provide a windfall for those who don’t need it (i.e. the wealthiest Americans and price-gouging universities) — with American taxpayers footing the bill.”

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Price gouging universities?

The WSJ cuts to the chase in Biden Bails Out the Price Gougers:

Of course Mr. Biden’s illegal plan to make taxpayers cover student-loan debts will in many cases shower benefits on borrowers who don’t need help.

But the biggest bailout is for the academic wokesters who get paid handsomely to supply products and services for which there is little or no market demand.

Take away the massive system of federal subsidies and there will always be students eager to pay for electrical engineering degrees from Georgia Tech—and private lenders happy to finance an education that is likely to generate earnings power for the borrower. The earnings power comes from the fact that the engineer can make stuff that people want and need.

What cannot exist without government intervention are expensive degrees in ideology and grievance and debt-fueled accumulations of nonmarketable skills.

As we’ve said before: dumb and dumber may have reached the inevitable: dumbest.

Even the Washington Post and the Daily Beast agree!

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P.S. It’s worth reading all of the above linked articles in their entirety

Econ 101: Biden’s Election Year Student Loan Forgiveness

August 24, 2022

Dumb and dumber looks even dumber when you dig into the details
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We’ll skip over the moral and legal points that have been widely reported (and summarily dismissed by Team Biden) … and go straight to the economics.

First, the macro look, as reported by left-leaning Wharton economists:

President Biden’s election-year plan to cancel student loan debt would cost the Treasury at least $329 billion and would mostly benefit wealthier taxpayers, according to a study released Tuesday.

The study showed that a majority of the relief would go to borrowers in the top 60% of earners.

Simplifying the argument, over $300 billion of student debt (held by about 40% of the U.S. population) would be transferred to the national debt which is owned by 100% of the population.

Economists call this a concentrated benefit and diffused cost.

That means that 60% of the population gets put on the hook for a debt that they didn’t sign up for.

Ouch

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Now, for the even more interesting micro look

My hunch: Many (most?) of the student loan holders probably envision that they’ll be getting another Biden-check in the mail … this one for $10,000.

Of course, that’s not the case.

Their loan balance will simply be transferred to the national debt.

So, what’s the pocketbook impact for the loan holders being bought off?

Let’s start with some defining parameters

  • The average outstanding student loan is about $40,000  Source
  • The average borrower takes 20 years to repay their student loan debt. Source
  • The most commonly used federal student loans have an interest rate close to 3% Source

OK, let’s plug those numbers into a basic P&I calculator (e.g. Excel’s PMT function).

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The bottom line: An average student loan holder will see their monthly student loan payment go down a whopping $55 … adding about 2 bucks-a-day to their disposable income … about a Starbucks frappe every week.

My hunch: Recipients of Biden’s election year juice will be a bit disappointed …

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And, here’s something that I haven’t heard or read anywhere: What about the income tax implications?

According to the IRS:

IF you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.

So, at a 15% income tax rate (the lowest bracket), a Biden loan forgiveness recipient might be getting a $1,500 tax liability … for the 2022 tax year.

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To recap:

  • The national debt will go up over $300 billion … wiping out the claimed debt reduction in the recent climate control bill (err, I meant “Inflation Reduction Act”)
  • A average student loan owner will pocket about $2 per day from reduced loan payments.
  • Those who get loan forgiveness may be subject to higher income taxes this year!
  • Everybody who paid off their student loans (like me) … or who worked — rather than borrowing — to pay for college (e.g. my wife) … or didn’t go to college (like about 1/2 the country) are stuck shouldering Biden’s largesse.

It’s called Bidenomics.

So, what explains student loan defaults?

April 5, 2019

Prompted by ideas being floated  to make colleges underwrite their their students’ loans, I’ve been doing some digging.

The most headlined explanations of student loan defaults report that over half of for-profit college students and over half of black students default on their loans.

The numbers may be true, but they’re more emotionally-charged than they are instructive.

So,  the left-leaning Brookings Institution drilled deeper on the headlined conclusions to understand what accounts for gaps in student loan defaults.

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Here are some of the more interesting conclusions from the “Evidence Speaks Report”…

(more…)

Should colleges be forced to underwrite student loans?

April 4, 2019

Sounds like a logical, easy fix, right?
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Yesterday, we posted about the $1.5 trillion in outstanding student loan debt held by about 45 million former students.

We argued that that’s a problem because (1) The student loans fuel tuition increases by enabling colleges to fund inefficiencies (2) Servicing the debt load constrains borrowers lifestyle choices (e.g. marriage, home buying) by crowding out other debt capacity, and (3) When interest rates rise (and, they eventually will) repayment will pose an increasingly difficult challenge for many (most?) borrowers.

Following on that last point,  the default rate on student loans is about already 20% on average … with big differences by the type of school the borrower attended.

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Source

What explains the differences?

(more…)

Student debt continues to skyrocket …

April 3, 2019

One of the byproducts of the recent college admissions scandal has been an elevated look at college attainment (i.e. what are students really learning) … and ballooning student debt.

Last week we looked at what students are really learning.

Now lets shift the spotlight to student debt.

First, some sobering statistics

Student debt has more than tripled since 2004, and is now over $1.5 trillion — second only to mortgage debt — and higher than both credit cards and auto loans.

That’s a problem because (1) The student loans fuel tuition increases by enabling colleges to fund inefficiencies (2) Servicing the debt load constrains borrowers lifestyle choices (e.g. marriage, home buying) by crowding out other debt capacity, and (3) When interest rates rise (and, they eventually will) repayment will pose an increasingly difficult challenge for many (most?) borrowers.

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Let’s drill down on that $1.5 trillion…

(more…)

The bleak job market for 2010 grads …

August 31, 2010

Some factoids from USA Today …

  • About 2.4 million students graduated with bachelor’s and associates degrees as part of the Class of 2010
  • Fewer than half of employers plan to hire recent college grads in 2010 … 79% in 2007
  • Two-thirds of those graduating with a bachelor’s degree are saddled with an average of $23,186 in federal and private loans
  • Among 2009 U.S. college graduates, 80% moved back home with their parents after graduation up from 67% in 2006.
  • Those with computer-related degrees led their class with an average job offer of $58,746.

Source: USA Today;Toughest test comes after graduation: Getting a job, 5/21/2010
http://www.usatoday.com/money/economy/employment/2010-05-19-jobs19_CV_N.htm?csp=obnetwork

What do student loans have to do with healthcare ? … and why you should care if you have a student loan.

March 23, 2010

Answer: Nothing … It’s a stretch to lump student loans and healthcare except that the apparent (i.e. unproven, unsubstantiated) savings accruing from nationalizing of student loan programs are needed to make ObamaCare look like it reduces the deficit.

I think there are huge implications — not only to banks, but also to student borrowers.

Here’s a twist: under ObamaCare, the tax-fines are going to be policed by 15,000 additional IRS agents. 

Do you think they’ll add another 15,000 to work collections on student loans ?

I’m betting the over on that one …

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Excerpted from USA Today:  Revamped student loan bill tucked into massive health bill, Mar 19, 2010

To satisfy budget requirements and win over skeptical deficit hawks in their own party, Democratic leaders wound up directing a total of $19 billion (of the $61 billion in revenues that the student loan shift would produce over 10 years) to reduce the deficit and help pay for the health care portion of the legislation.

The basic thrust of the legislation, which would derive its $61 billion in savings by shifting all lending from the lender-based (but government-subsidized) Federal Family Education Loan Program to the government’s Direct Loan Program. The lenders have been trying to months to turn lawmakers against the idea of ending their ability to make loans (and the accompanying subsidies), arguing that doing so would kill thousands of jobs.

But on Thursday, they took another approach, directing their ire at the billions of dollars that would go to purposes other than helping students afford college, namely health care.

“Should students be paying for their neighbor’s medical costs? Separate consideration of student loan reform is imperative to ensure that legislation that minimizes job losses and reinvests savings in higher education can be considered.”

The most blatantly political move in the legislation: an exemption that would allow a state-run bank in North Dakota (alone among the states) to continue to offer loans directly to students.

Democratic Congressional aides defended the decision because they said the North Dakota bank is, as a taxpayer-owned agency, essentially a government lender like the federal government, so sustaining its ability to lend is consistent, they argued, with the legislation’s overall goal.

But critics compared the deal to the much-criticized exemption that health care supporters granted to Sen. Ben Nelson of Nebraska to win his key vote for that legislation,

“This ‘Bismarck Bank Job’ provision looks like exactly the sort of backroom deal that makes the American people hate Washington and the whole process that has led to this massive, awful government takeover of our health care.”

Full article:
http://www.usatoday.com/news/education/2010-03-19-IHE-student-loan-measures-in-health-bill19_ST_N.htm


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