New student loan bill pending in Congress Forum

[Mr Cooper]

http://www.bloomberg.com/news/2012-12-0 ... gress.html

-IBR gone
-No forgiveness at 20/25 year mark (or for public service)
-% based payment comes directly out of your paycheck, like taxes
-Total interest capped at 50% of face value of loans at graduation. (i.e. 100k of loans can only have 50k interest)
-Only applies to new loans
-Paid for by eliminating loan subsidies and forgiveness;
-Interest on loans is tied to treasury rate

Bad news for anyone planning on taking out a ton of loans to go into a low paying legal field. Also means lifetime servitude for those who can't pay of their loans. On the other side, interest is capped so people won't be getting as killed on interest. Will be interesting to see if it gets passed.

[jrsbaseball5]

Based on your bullet points this seems like it could be very beneficial for a select group of individuals. And absolutely horrible for others.

[WhiteyCakes]

Republican bill with a democratic senate and a president who campaigned on IBR....that is pretty much the definition of DOA

[ScottRiqui]

Republican bill with a democratic senate and a president who campaigned on IBR....that is pretty much the definition of DOA

I haven't seen the text of the bill since it hasn't been introduced yet, but it sounds like the repayment plan (15% of the portion of your AGI that exceeds 150% of the poverty level) is essentially the same as under the current IBR arrangement. You'd lose the current IBR loan-forgiveness options, but wouldn't the cap on total interest help offset that somewhat?

[WhiteyCakes]

Republican bill with a democratic senate and a president who campaigned on IBR....that is pretty much the definition of DOA

I haven't seen the text of the bill since it hasn't been introduced yet, but it sounds like the repayment plan (15% of the portion of your AGI that exceeds 150% of the poverty level) is essentially the same as under the current IBR arrangement. You'd lose the current IBR loan-forgiveness options, but wouldn't the cap on total interest help offset that somewhat?

Not necessarily, since IBR payments often don't even cover the interest that is accruing on your loans. The forgiveness is the only thing that makes IBR a viable option

[dingbat]

-Interest on loans is tied to treasury rate

Please yes. I'd love to take out loans at under 3% rather than close to 8%. Does this apply to new loans, or new students?

[BruceWayne]

Do you have links to any other websites that discuss this?

[WhiteyCakes]

Do you have links to any other websites that discuss this?

https://www.google.com/search?q=congres ... 66&bih=651

[ScottRiqui]

Republican bill with a democratic senate and a president who campaigned on IBR....that is pretty much the definition of DOA

I haven't seen the text of the bill since it hasn't been introduced yet, but it sounds like the repayment plan (15% of the portion of your AGI that exceeds 150% of the poverty level) is essentially the same as under the current IBR arrangement. You'd lose the current IBR loan-forgiveness options, but wouldn't the cap on total interest help offset that somewhat?

Not necessarily, since IBR payments often don't even cover the interest that is accruing on your loans. The forgiveness is the only thing that makes IBR a viable option

Would that still be the case if the interest stops accruing once it reaches 50% of the original loan value? With a hypothetical $100k loan, you know that the total of your repayments will never exceed $150k. Hopefully you'd have that paid down in the 25 years that you might have to wait for forgiveness under the current IBR.

ETA - I'm not saying that I like this proposed plan. I'm just wondering how much of a "bad" thing losing loan forgiveness will be if you counter it with the "good" thing that the amount you owe can no longer balloon to 2-3X the original loan amount because of eternally-accruing interest.

[Mr Cooper]

Based on your bullet points this seems like it could be very beneficial for a select group of individuals. And absolutely horrible for others.

And unfortunately, the "others" are the majority of law grads.

[WhiteyCakes]

Republican bill with a democratic senate and a president who campaigned on IBR....that is pretty much the definition of DOA

I haven't seen the text of the bill since it hasn't been introduced yet, but it sounds like the repayment plan (15% of the portion of your AGI that exceeds 150% of the poverty level) is essentially the same as under the current IBR arrangement. You'd lose the current IBR loan-forgiveness options, but wouldn't the cap on total interest help offset that somewhat?

Not necessarily, since IBR payments often don't even cover the interest that is accruing on your loans. The forgiveness is the only thing that makes IBR a viable option

Would that still be the case if the interest stops accruing once it reaches 50% of the original loan value? With a hypothetical $100k loan, you know that the total of your repayments will never exceed $150k. Hopefully you'd have that paid down in the 25 years that you might have to wait for forgiveness under the current IBR.

Isn't current IBR 10 years for LRAP?

[dingbat]

Isn't current IBR 10 years for LRAP?

PSLF requires 10 years IBR. Not all jobs are PSLF eligible.
LRAP varies from school to school, both in covered employment and in terms of forgiveness

[romothesavior]

Can't see any way this gets passed, unless maybe its used as a chip in the debt negotiations. Obama likes to tout his student loan reform and I don't see Dems coming on board with this.

[Mr Cooper]

Republican bill with a democratic senate and a president who campaigned on IBR....that is pretty much the definition of DOA

I haven't seen the text of the bill since it hasn't been introduced yet, but it sounds like the repayment plan (15% of the portion of your AGI that exceeds 150% of the poverty level) is essentially the same as under the current IBR arrangement. You'd lose the current IBR loan-forgiveness options, but wouldn't the cap on total interest help offset that somewhat?

Not necessarily, since IBR payments often don't even cover the interest that is accruing on your loans. The forgiveness is the only thing that makes IBR a viable option

Would that still be the case if the interest stops accruing once it reaches 50% of the original loan value? With a hypothetical $100k loan, you know that the total of your repayments will never exceed $150k. Hopefully you'd have that paid down in the 25 years that you might have to wait for forgiveness under the current IBR.

With the 150k hypo loan, there will be no forgiveness though. It's not gone until its either paid or your dead. If passed, people really need to begin doing their research when it comes to student loans/career plans. If people finally stop taking out absurd debt amounts to go into low paying jobs (more than half of law grads?), this could be the straw that breaks the camel's back in regards to LS tuition, and could ultimately result in a good amount of law schools closing. Of course, if people were concious of their actions regarding debt, we wouldn't be in this problem to begin with. Other than the capped interest, this is trouble for a lot borrowers.

[Mr Cooper]

Can't see any way this gets passed, unless maybe its used as a chip in the debt negotiations. Obama likes to tout his student loan reform and I don't see Dems coming on board with this.

Unless the capped interest is the selling point he can make to future borrowers. The fact that the government is already guarenteeing loans to anyone for an unlimited amount (and therefore allowing schools to jack up their tuition) is either proof he doesn't know what he's doing or doesn't really care about student loan borrowers.

[kingjones59]

"Legislation that Wisconsin Republican Representative Tom Petri plans to introduce as soon as this week would require employers to withhold payments from wages in the same way they do taxes. Payments would be capped at 15 percent of borrowers’ income after basic living expenses. "

This is basically still IBR.

"The legislation would tie the interest charged to Treasury market rates"


I dont see how this program could be bad. Lower interest rates, payments capped at 15% of borrowers income after living expenses, and interest capped at 50% of the principal? Looks to me like they are just trying to increase the payment rate by taking it straight from your paycheck (which I am not necessarily a fan of).

If you go to a school with Loan Forgiveness (T20), your loans are still paid for if you do public service. Im admittedly a Democrat and am a firm believer that anyone should be able to get the education they want as long as they are willing to pay the price for it, but I am a fan of this bill. Alas, no way it gets passed though.

[ScottRiqui]

I dont see how this program could be bad. Lower interest rates, payments capped at 15% of borrowers income after living expenses, and interest capped at 50% of the principal? Looks to me like they are just trying to increase the payment rate by taking it straight from your paycheck (which I am not necessarily a fan of).

The bolded part is why I'm curious to see the full text of the bill when it's released. On some sites that have been discussing this proposed legislation, they're interpreting it the way you are (that direct payment from your paycheck will be how everyone repays student loans in the future), while other commentators are interpreting it to mean that automatic payroll deduction would only be used for people who have defaulted on their loans. Automatic garnishments would be much better for the government compared to having to sell the debt to a private collection agency for pennies on the dollar.

[sadsituationJD]

A much better plan would be to simply restore bankruptcy protection for all student loans, public and private. The argument that "there is nothing to repossess" and "biglaw kids and surgeons will declare BK and then make millions" are both absurd, for the following reasons:

1. Most consumer bankruptcies result in the creditors getting totally 100% screwed. The BK trustee is not taking your plasma TV, furniture, or other trinkets bought on credit cards etc to re-sell on craigslist and get pennies on the dollar for. Even most "underwater" homes are worth far, far less than what's owed, and in many cases banks are taking years to foreclose and coming our behind after they pay a few years of property taxes, insurance, and deal with vandalism etc on these dumps. So the idea that there is no "collateral" on a student loan is utter BS.

2. If there is a fear of people like MD's or dentists or those who actually have decent income prospects (which of course excludes 95%+ of law school grads, i.e. everyone not getting Biglaw) declaring BK and then going on to lucrative careers, why not impose either a 2 or 3 year license professional suspension as a "punishment" for discharging the loans, so that the decision is a bit harder for the BK filer.

Or maybe just go "all out" and simply make surrender of professional licenses a pre-req to BK discharge. Just about every attorney I know who I've posed this hypo to has said they'd resign from the bar immediately if it meant discharging student loans (myself included). That's how miserable this industry truly is, unfortunately. Of course, a JD/bar admission certainly isn't any kind of "accomplishment" anyway, given the abysmally low standards & dreadful career prospects/income levels/quality of life/job satisfaction of this industry.

[dingbat]

A much better plan would be to simply restore bankruptcy protection for all student loans, public and private. The argument that "there is nothing to repossess" and "biglaw kids and surgeons will declare BK and then make millions" are both absurd, for the following reasons:

1. Most consumer bankruptcies result in the creditors getting totally 100% screwed. The BK trustee is not taking your plasma TV, furniture, or other trinkets bought on credit cards etc to re-sell on craigslist and get pennies on the dollar for. Even most "underwater" homes are worth far, far less than what's owed, and in many cases banks are taking years to foreclose and coming our behind after they pay a few years of property taxes, insurance, and deal with vandalism etc on these dumps. So the idea that there is no "collateral" on a student loan is utter BS.

2. If there is a fear of people like MD's or dentists or those who actually have decent income prospects (which of course excludes 95%+ of law school grads, i.e. everyone not getting Biglaw) declaring BK and then going on to lucrative careers, why not impose either a 2 or 3 year license professional suspension as a "punishment" for discharging the loans, so that the decision is a bit harder for the BK filer.

Or maybe just go "all out" and simply make surrender of professional licenses a pre-req to BK discharge. Just about every attorney I know who I've posed this hypo to has said they'd resign from the bar immediately if it meant discharging student loans (myself included). That's how miserable this industry truly is, unfortunately. Of course, a JD/bar admission certainly isn't any kind of "accomplishment" anyway, given the abysmally low standards & dreadful career prospects/income levels of this industry.

If you have decent income prospects, your debt will not be discharged in bankruptcy

[cahwc12]

Can anyone find the actual bill number?

[romothesavior]

Screw bankruptcy, let's just go back to debtor's prison.

[timbs4339]

Average people have some bizarre idea that rich lawyers will just be able to walk away from their student loans in bankruptcy because bankruptcy judges are dumb or something. Or that the dude makes 20K/year as a barista is only doing so until they change the bankruptcy laws to let him walk away from his debt. Only then will he take that Skadden job.

This bill has about as much of a shot as passing under the current Congress as the Student Loan Forgiveness Act. But this story should also shut up the people who claim that there is no political will to get rid of IBR. There clearly is some political will, and another administration or another poor midterm showing from the Dems might be enough to put the program on the chopping block.

[jrsbaseball5]

Based on your bullet points this seems like it could be very beneficial for a select group of individuals. And absolutely horrible for others.

And unfortunately, the "others" are the majority of law grads.

That is correct. It would seem that the big winners would be those who get Biglaw since they would make a high income while also having their debt limited to 50% of what they accrued at graduation. Unfortunately, those were the ones who were already in the best position to handle their debt anyway.

[WhiteyCakes]

Can anyone find the actual bill number?

It hasn't been introduced yet

[sadsituationJD]

“This doesn’t mean leaving taxpayers on the hook if a student borrows too much -- everyone would still pay back what they borrow under this system,” Petri said in an e-mail.

This kind of absurd "magical thinking" is so common among Congressmen and baby-boomers in general. In fact, "everyone" will not pay back what they borrowed, and many will pay back nothing at all. For most kids today, a college degree offers no "edge" in earning power vs. a high school diploma. A JD is such a comically poor "investment" for all but the Biglaw/Ivy crowd that it doen't even merit serious discussion. The loan money borrowed will not be paid back because:

a. There are not enough jobs period,

b. Of the few jobs that exist, the wages are not high enough to permit even token servicing of the debt.

Furthermore, every indication is that the jobs market/wages is getting worse, not better. It will continue to get worse because America is a country on the decline. Our best days are, sadly, behind us. This is the first generation since WWII that will see a markedly lower standard of living than their parents. The real place to address the student loan issue is on the front end, with salary caps for profs and admins at schools which accept federal money, as well as requiring proof of certain salary/employment metrics & outcomes to be eligible to receive federal $$$.