[Guest post by DRJ]
A side effect of the passage of health care is the Obama Administration’s reinvention of student loans into a government program. Here’s how it will work:
“Starting July 1st, when the government issues student loans, it will bypass the banks who have traditionally provided them, and directly target borrowers.
A White House press release spells it out this way, “[A]ll new federal student loans will be direct loans, delivered and collected by private companies under performance-based contracts with the Department of Education. According to the non-partisan Congressional Budget Office, ending these wasteful subsidies will free up nearly $68 billion for college affordability and deficit reduction over the next 11 years.”
But some in the President’s own party say eliminating the middle man also equals eliminating jobs.
But the President’s focus today will be more about what the bill does than what it does not.
He will also talk about the provision’s less controversial expansion of Pell Grants, as well as supporting historically black and minority institutions and caps on student loan repayments.
According to the White House, “New borrowers who assume loans after July 1, 2014, will be able to cap their student loan repayments at 10 percent of their discretionary income and, if they keep up with their payments over time, will have the balance forgiven after 20 years.”
I won’t bother complaining about how Obama is inserting the government into every area of American lives and working to shrink capitalism. But I’m curious how those loan cap recipients will react when they figure out they will have to give the government detailed proof of their annual income and expenses for 20 years, or until they pay off their student loans?
Maybe they will be so grateful for the loan forgiveness that they won’t care but most people wouldn’t like having to provide the government with a list of all their expenses and letting a bureaucrat pore over them to decide which expenses are necessary and which are discretionary … for 20 years.
UPDATE: More on repayment caps below.
MORE ON REPAYMENT CAPS — In fairness, the 10% repayment cap provision may not be that big a change since current law already sets a 15% repayment cap for some government student loans:
“The Income-Based Repayment (IBR) plan was enacted as part of the College Cost Reduction and Access Act of 2007 and became available on July 1, 2009. It is best for borrowers who are experiencing financial difficulty, have low income compared with their debt, or who are pursuing a career in public service.
Income-based repayment is intended as an alternative to income sensitive repayment (ISR) and income contingent repayment (ICR). (Both ISR and ICR plans will continue to exist.) It is designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service. It does this by capping the monthly payments at a percentage of the borrower’s discretionary income, which is based on the borrower’s income and family size, not the total amount borrowed. The monthly payment amount is adjusted annually, based on changes in annual income and family size.”
Thus, under current law, the government analyzes income and family size to determine repayment caps. But, like health care reform, the concern is not only existing law but what regulations will accompany it. Assuming this law provides the government will calculate discretionary income the same as in the past, that doesn’t prevent it from changing applicable laws and regulations in the future.