Today’s edition of the Raleigh paper fairly gushed with the headline: “Obama speeds debt relief to students.” The article’s enthusiastic authors, local writers for the paper, basically repeated what the White House put out about the president’s plan to ease up on student loan repayments: that it would provide relief for “millions of young people, including thousands of recent N.C. college graduates.”
If you’re dying of thirst and someone gives you a drop of water, is that relief?
The first part of the plan permits consolidation of multiple student loans, which “could reduce the interest rate by up to .5%,” according to summaries of the plan. This is worth, according to analysis by The Atlantic Monthly, “between $4.50 and $7.75 per month,” for the average debt-laden graduate, or less than a bag of halloween candy. The analysis calculated that even for someone with $100,000 in student loan debt, the montly savings would be just $28.50, or two and a half bags of candy.
The measly savings come from the fact that student loans have repayment terms of up to 25 and 30 years, and a .5% difference in interest rate just doesn’t move the needle much over a long period of time.
The second part of the plan cuts the minimum monthly payment on a loan, but only for students in school now who will graduate after 2011, and only on a loan with an income-based repayment plan.
According to FinAid.org, current law defines a graduate’s ‘income’ as adjusted gross income less 150% of the official poverty line. Here is the 2011 payment table from student.ed.gov.
The table shows that a person making $30,000 per year would have a minimum payment of $171 per month under current law. Backing into the calculations, we can see that lowering the required minimum to 10% produces a monthly savings of $56.25. Five bags of halloween candy, but not for anyone who has already graduated.
What about the third and last part of Obama’s plan — reducing the forgiveness period to 20 years from 25? This means if you make payments as required but still owe a balance after 20 years, you are forgiven that balance. That is certainly a benefit — although it disproves Obama’s claim that the program costs taxpayers nothing — and we will all be a lot older by the time that benefit is realized. Since the overwhelming majority of outstanding student debt was incurred in the last three to four years, graduates will wait until 2029 or so to realize that benefit, by which time they may have – gasp! – paid the loan off!
So we have the Candyman giving out candy for halloween – what’s wrong with that?
It perpetuates the expectation that government should help us resolve our financial problems. It has a miniscule impact on people’s individual finances while still costing taxpayers: how does the government enable lower loan payments and write off more loan balances without having to borrow money from somewhere?
Perhaps most importantly, it is an insult to educated young people, who know better, who know that Mr. Obama is offering cheap and wholly unsatisfactory solutions to the real problem of unemployment yet hawking them as huge and wonderful, as sweeping changes in millions of people’s lives.
If you read the article in the Raleigh paper, know something else: that the writers didn’t bother to give you a real analysis of the president’s program, and that this kind of copy-and-paste journalism is prevalent and a big reason why young peope remain largely uninformed about many important issues today.