student loans

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Pay It Forward, Pay It Back

by Mike Ciaverelli

Oregon proposed a program that would allow students to attend state colleges tuition free. This proposal, called the “Pay It Forward, Pay It Back” program would have students go through their higher education without the stress of taking out loans and racking up a lot of interest and massive debt. They would do this by paying the state back a small portion of their income over the course of about 20 to 25 years. After graduating, the student would pay 0.75% of their yearly income per year of schooling. This means a 4 year student would end up paying 3% interest for the time that they are paying. This interest would be put into a trust fund that would help other students in the future.

There are some problems with this proposed plan. One problem is the massive cost that the states would have to pay to start this program. Washington looked into the feasibility of this plan for their state and determined that it could cost as much as 1.4 billion dollars a year. Also, because the payment plan is based on the income of the students after they graduate, it may drive the top students away from state schools if they believe that a portion of their possibly higher income will be taken away from them over the next 20-25 years.

Although this plan is not perfect, it may be a step in the right direction to help students pay for their education without amassing a large amount of debt.

White, M. (2013, July 17). Oregon’s ‘Pay It Forward’ Program: Imagine College with No Tuition, No Loans, No Debt. Retrieved September 23, 2014, from http://business.time.com/2013/07/17/oregons-pay-it-forward-program-imagine-college-with-no-tuition-no-loans-no-debt/

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Should college students pay higher interest than banks?

by Stephen Fortin

College costs have been steadily increasing since the 1970’s. As of late, the costs have continued to sore at an even faster pace. Accompanying the rise in college education costs is student loan debt. In fact, the recent 2012 grad owes over $29,000 in student loans. This is up from more than just over $9,000 in 1993. With this increasing burden on America’s younger generation it would seem logical to lower the federal interest rate on student loans.

 Current students are paying about 4.66% interest on student loans, although there are many others who have interest rates which are locked in at above 9%. It seems obvious that higher education is vital to America’s economical future. Having a well educated public defines a society and an economy. Despite this however, lawmakers are rejecting proposals to lower federal student loan interest rates. In fact, government seems to believe banks should pay lower interest rates on federal loans than students. Banks pay a rock-bottom interest rate of only 0.75%.  College costs are a huge issue plaguing the prospective college student, but it seems the government prefers to see banks prosper than young Americans invest in their own futures.

 As many Americans struggle with paying back college debt the government seems to turn a cold shoulder. College costs and debt should never be a matter of politics; yet as many struggle to pay back debts, government struggles to see the problem in favoring banks over students.

 Quandt, Katie. “College Has Gotten 12 times More Expensive in One Generation.” Mother Jones. N.p., 3 Sept. 2014. Web. 21 Sept. 2014. <http://www.motherjones.com/politics/2014/09/college-tuition-increased-1100-percent-since-1978>.

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IBR and the Need for More Help

by Brianna Englert

The income-based repayment program is a great response to the difficulties people face when pursuing a career in public services where usually a college degree is mandated.  A low income and high student loan truly brings out the question whether or not college is worth it? With this program capping the percentage of one’s income one can pay on student loans leans the answer towards yes; however, only federal loans are covered. Often the cost of education causes many students to take out private loans with high interest rates and there really is not much help for those people. Articles about people suffocating in their student debt and retirees losing financial stability because of student loans still have the worth of college being questioned.

Education is key. Education is the most consistent way to create a financially stable life and possibly family. The lottery is always a fall back. In order for America to retain its image in the world it needs to be filled with educated citizens furthering, promoting, and expanding its economic success.  The government needs to be aiding younger generations with programs such as the IBR. They also need to do more because the importance of furthering education should not be competing with a price. High school graduates should not be wondering, “is college worth it?”

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Florida is further than you think: Today’s college graduates won’t be retiring any time soon

 

by Michael Pacitti

It’s no secret, retirement is a long way away for all recent college graduates. It’s fair to say that they’re worrying about finding a job now, not relaxing on a beach somewhere 40 years down the line. Let’s face it, retirement isn’t exactly a top priority for this demographic. But what if I told you that your retirement wouldn’t happen for an additional ten years?

An alarming prediction from the financial website NerdWallet concludes that the average college student with loan debt of $23,000 on a 10-year repayment plan could translate up to $115,000 less for their retirement fund. I know what you’re asking- who in their right mind would pay in excess of $90,000 of interest on a $23,000 loan? Rest assured the answer (at least in this scenario) is still no one in their right mind. However, there is an economic factor called opportunity cost that is key to the prediction NerdWallet makes. Opportunity cost is the amount of money one could potentially earn if a certain sum was invested with compounding interest rate over a certain period of time. In other words, if the money spent on paying back student loans was instead invested, it would amount to a sum over $130,000 after 33 years. However, if not invested, this ends up costing students ten additional years’ worth of work before having the savings to retire.

Although it is not an issue for the near future, the ability to retire and live comfortably is a goal almost all people strive for. With the rising cost of student loans, this goal drifts farther and farther away from recent grads until eventually staying out of their reach.

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What would Student Loan Rate Hikes Mean for the Average Borrower?

Today’s Philadelphia Inquirer has an editorial calling on Congress to address the coming spike in student loan interest rates. Legislative inactivity will cause rates to spike from 3.4% to 6.8% per year beginning July 1. To see what that means to people with student loans let’s take a look at the numbers. According the Project on Student Debt, the average level of student loan debt for college graduates in 2011 was $26,600. This level of debt, paid over a 10 year term, @ 3.4% would require a monthly payment of $261.79 according to a loan calculator.  The same loan @ 6.8% would require a monthly payment of $306.11 0r an increase of $44.32 per month. This number doesn’t seem particularly egregious, but when you factor this over the course of a ten year loan it means that graduates would pay an addition $5318.40.

The Inquirer notes that all of the existing plans for addressing the student loan rate spike are inadequate. According to the editorial

None of these plans recognizes the tremendous public benefit of an educated populace. People with postsecondary education are more likely to become self-sufficient, taxpaying members of the middle class. That contribution to the greater good and to democracy is worth something.

This is food for thought as Congress debates how to keep college affordable.

 

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College Debt, Planning and Just Saying No

NPR’s Morning Edition conducted a valuable interview on college debt with Ron Lieber of the New York Times (Debt and the Modern Parent of College Kids).  Mr. Lieber provided tough, but common sense,  solutions to the problems of financing education. Two parts of the discussion stand out.

First, he suggested that parents think of funding college in three 33% increments (the 20/20/20 plan if education were to cost $60K over four years) . First, parents could save one third of the costs of college over the period of 18 years through a manageable savings plan. Second, they could pay 1/3 of the costs out of pocket while their child was in school. He stated

“It might mean some sacrifices — some very careful budgeting, a lot of rice and beans on the table — but it’s doable.”

The final third of higher education costs could be subsidized through federal loans.  The 20/20/20 plan seems sensible because

[w]hen you start to divide it into chunks, it starts to seem at least within the realm of the possible.

Mr. Lieber’s second useful suggestion involved a bit of pragmatic toughlove for parents. He says that sometimes emotions have to be trumped by rationality when children get accepted to a top tier school.

[T]here’s this feeling of ‘Can I or should I say no to my child who wants to go to a $60,000-a-year school when they’ve already gotten admission to the flagship public university in our state that only costs $20,000?’ And then there’s the question of ‘Is it worth it? What am I getting for the extra $40,000 and would we be able to pay our own debt back if we were to support the dream of our child?’ These are all deeply emotional decisions, and you have to begin by acknowledging that it’s feelings that are on the table first before you look at the hard science of the numbers.

Please listen to the rest of the story for more information on what types of loans to take out and whether it is worth it to borrow against retirement.

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Young Adult Borrowing is Down, While Student Loan Debt is Up

The Pew Research Center recently released Young Adults After the Recession: Fewer Homes, Fewer Cars, Less Debt. The study examines the borrowing habits of younger Americans over the last decade. The report concludes that they are taking on less debt, primarily in the areas of home mortgages and car loans. In part this is the consequence of delayed marriage and household formation among the younger demographic group. The Pew study found that “the median debt of households headed by those younger than 35 fell from 2001 ($17,938) to 2010 ($15,473).”

Unfortunately, the only type of debt to increase in recent years has been from student loans. Pew found that

Student debt was the only major type of debt to increase in prevalence among young households during the recession. In 2007, 34% of young households had outstanding student debt. By 2010, 40% of younger households had student debt. However, the median amount owed by households with student debt fell from $14,102 in 2007 to $13,410 in 2010.

This number is up substantially from 2001 when only 26% of younger households had outstanding student loan debt. Debt from student loans has also increased as a proportion of outstanding debt: from 7% in 2001 to 15% in 2010.

Composition_of_Young_Household_Debt