I’ve talked about student loans on this site before AT LENGTH, and really it’s just me ranting about something that nobody in DC is ever going to fix because too many people get rich from it now and on the off chance it does get addressed, not only do those people stop getting rich, but then not everyone can get loans to get an education. So maybe this is all for nothing… Maybe. But as I was once a member of the media, it’s my duty to bring you the cold hard truth. So here it is.
Today I learned something new about student loans that pissed me right off, and gives me an idea of WHEN the bubble will pop… Because it WILL pop.
The thing I learned about was this payment structure available called “PAYE” – stands for “Pay as you earn.”
Essentially the structure is setup in a way that you pay 10% of what your discretionary income* is toward your student loans… So if you racked up $200,000 in student loans but you got a job making $40,000 a year, as opposed to paying a RIDICULOUS amount in student loans each month to pay back that $200k loan you took out, you only would be paying something like $300/month…
Oh, AND, if you keep paying your obligatory 10% each year for 20 (or 25 years depending on when you qualified for this), you don’t have to pay anymore – REGARDLESS OF THE BALANCE!!
So, let me break this down. If you took out an irresponsible amount of loans to get a degree, and then worked a low paying job that would never afford you the ability to pay them back, all you have to do is pay back 10% of your discretionary income for 20/25 years and POOF!! You’re loan go away.
Now, for the part of the population who maybe chose to forego extra schooling, entered the workforce, and paid the loans back that they agreed to when they borrowed it… Are those people rewarded?
To me, the worst part about this isn’t the fact that I feel like I’m getting the short stick despite holding up my end of this bargain… It’s the fact that in 20/25 years – as these loans all begin to be “forgiven” – the US government (those responsible for this program) are going to be writing off so much “bad debt” it’s insane.
So now, I’m seeing a ton of my peers not only NOT having to pay back their loans in full (while I did and saw no benefit), but I’ll ALSO have to watch as the dollar gets weaker (or much less likely the government collapses) as the bad debts all get written off.
Because think about it, all of these loan balances are all going to be written off at the same time. So let’s say college costs started going up exponentially around 2003(ish?) and continued for the next 15 years… So starting in 2028 (25 years of this PAYE program when you can just stop paying your loans and be “forgiven” **rolls his fucking eyes**) bad debt of college students in this program will need to be written off, and the amount written off year after year will only continue to increase as time goes on – you know, since tuition costs kept going on and loans kept getting taken out!!
Now, I had heard that the reason for this PAYE program is to collect at least SOMETHING as opposed to people just defaulting on them and the government not getting back anything. But is that even the solution??
The problem is that everyone can get a loan to go to school… End that and you end the madness everywhere else down the line!
If not everyone goes to school, then not everyone has loans, THEN not everyone’s loans default in 25 years and America doesn’t implode because of its own debt that it seemingly has no idea how to manage!
I know these finance blogs are not exactly in line with the type of shit we usually write about, but we’re pretty unhinged right now as far as what kinda content this site is going to post about… So until we find our way again, whatever pops into our heads (Franz Ferdinand, killing a cow, the original Lennay Kekua, libs shooting themselves in the arm to protest Donny, etc) is what we’re going to write about.
Stay on your toes because who the hell knows what we’re throwing at you next!
Official Bubble Pop Date: 2028
* = Discretionary income (from what I gather off the PAYE site) is your gross income MINUS 1.5 times the poverty rate in your state. So NYS’s poverty income is like $12k, so you’d take your income and subtract $18k and then THAT is the amount you’d multiply by 10% to come up with your monthly payment.