My wife ran into a similar issue relating to a repayment plan where the servicer fubared everything in the process of the 6 transfers between servicers.
Fortunately, we had the means and a low enough balance to put it on a high limit balance transfer and pay it off.
I wonder how much of the specific forgiveness problem has to do with private loan servicing. As someone who switched to direct loan servicing in 1995, I found it refreshing to have a government official (who has no financial incentive to deceive you) service your loan.
Before 1993, Stafford, PLUS and other student loans were guaranteed by the Federal Government but held and serviced by private entities. In 1993, direct student loan servicing was created and there was a way to convert your loans to be government held and serviced. Starting 2010 only federal direct loans are issued. The history is very political [1].
The student loan forgiveness program is a terrible idea no matter what your political leanings.
It's basically a very weird way to compensate people for certain kinds of jobs.
The accounting is a mess, it's a promise for the future so it doesn't show up as a budget problem tofay, but will later.
It's very uneven -- some people take out huge loans and other borrow more modestly. The borrowed money can be used for lots of non-educational things, so it creates an incentive to borrow more than you really need.
And then it's a big yes or no at the end, not gradual, so it sticks people to jobs and makes a big dramatic event after ten years.
I strongly disagree. It’s one of the few tools available that ensures that qualified, well educated teachers are available everywhere.
The program is a great example of the power of the federal government to lift all boats, even when the local governance doesn’t care at all. We see lots of examples of mostly red-state governance where passing costs off to other jurisdictions is essentially government policy. (Example: https://www.thedailybeast.com/nevada-sued-for-greyhound-ther... )
This doesn’t let them do that for several professions.
> they certainly find such salaries for administration
This is one of those claims that in a way has become 'common wisdom', but that I've seen no actual evidence of. I wonder if it's just one of those talking points of people who want to cut taxes that has never been challenged or at least defined, like "government waste". It's like an end-user saying 'my computer's software is buggy' - that doesn't tell me anything, and for all I know it's your power supply, monitor, or a million other possibilities, or even a matter of perception by a user in a bad mood or with a bias.
Especially we don't know the problem definition: Which administrators are overpaid? How frequently? Is it certain administrative jobs? In certain size districts? Is it due to some other problem? And which administrators are underpaid?
Finally, while we should pay attention to these issues, let's not catastrophize every problem into a organizational disaster. I know plenty of administrators in business who are overpaid; the perfect human institution doesn't exist.
I think it's a meme that has carried over to k12 from stories about massive administration growth in higher ed relative to teaching staff.
It also is challenging to make apples:apples comparison between teacher and administrator salaries as the contracts are structured very diferently. That said - anecdotally, admin salaries are commonly 2x+ average teacher salaries in districts that I have had experience teaching within.
Administrative salaries are up, but generally in line with increases in research funding (research funding has a lot of administrative overhead. Read OMB Circular A-21 if you want to see some example details.) Yes, there are reports of some over-payments at the top executive levels, but just like in a corporation, overpaying the C-Level executives by $10/mil a year just doesn't move the needle for companies with 10's of billions of dollars a year in revenue.
My personal pet peeve here is that school superintendents get to negotiate with the board and get all sorts of premium benefits (ie free healthcare for life, second pensions, etc) with minimal transparency. Other similar jobs, like police chiefs, are civil service positions with standardized deals.
Administration is growing because compliance requirements are growing.
Local school boards are something you can influence much more effectively than national policy. Yes, you can convince your neighbors that they should pay teachers more; I would bet that the best place to start would be a district with a high proportion of families with school-age children, and with a high proportion of teachers living there. I'm not saying it's easy, but lots of progress in the world begins with things that are hard or nobody has done.
The average cost of the average teacher has to be approaching $90k a year already. In Arizona, a state not known for education spending, spends close to $15k per teacher on pension contributions. Add in medical and other benefits, 3 months vacation, tenure, payroll taxes and the typical teacher is near there.
You do NOT want to suggest to a teacher that their salary isn't that bad, for working 3/4 of the year. Especially if there are any throwable objects at hand...
Whether they are or not, many firmly believe they are underpaid.
> The average cost of the average teacher has to be approaching $90k a year already.
It would be interesting to know where you got that. This is an area where people feel free to spread disinformation so I'd be careful.
> In Arizona, a state not known for education spending, spends close to $15k per teacher on pension contributions. Add in medical and other benefits, 3 months vacation, tenure, payroll taxes and the typical teacher is near there.
Everybody I know who isn't completely saddled with student loan debt burns out of teaching in five to ten years and moves on to something else. Almost all the rest of them are just as burned out, their options are just more limited, for one reason or another.
Three months off a year, government level medical benefits, and lucrative pensions after only 25 years (sometimes only 20). Not to mention tenure.
Schools are paying enough to not have any lack of candidates for open positions. Their real problem is to equate “teaching certificates’ and credentials with teaching ability.
I don't think he's quibbling with the intent of the program, which is what you're defending. He's objecting to the implementation.
What if the program had provided an on-time payment bonus (say $500 per payment) on each payment made by people in a qualifying job? The financing of the program would have been continual, so no 10-year budget time bomb. The loan forgiveness would be fixed rather than 100%, encouraging borrowers to borrow responsibly. And it would still accomplish the goal of encouraging people to work in those kinds of jobs.
And, more importantly to the man in the article, the loan balance would be front and center, so he would have realized there was a problem immediately when he didn't see it going down fast enough.
There are 1000 different ways that you could improve this situation. Getting rid of the servicer middleman, or making said middleman accountable for mistakes made would be a good start.
The current scenario is a breeding ground for problems — nobody is accountable.
If your only concern is teachers, then why does loan forgiveness apply to all kinds of government jobs, and not just teachers? Why is it all-or-nothing?
All-or-nothing only makes sense because you can avoid accounting for the costs today, which is convenient for politicians. It's not convenient for teachers.
It's basically a very weird way to compensate people for certain kinds of jobs.
Not just that; it's a way to encourage people with a specific set of traits to take certain jobs.
If I were more cynical, I'd suggest that a group of bankers was looking for ways to create a generation of debt slaves, and someone came up with "how about we make sure that their high school teachers are all people who can't manage to effectively manage their money". I'm not quite that cynical, and I don't think this was deliberate -- but the fact remains that creating a strong financial incentive to become a teacher but only if you can't pay your debts is not exactly consistent with the idea that kids should gain some financial literacy while in school.
That might make sense to me if the teachers were responsible for teaching financial literacy.
It's been a decade or two since I've been in high-school but we didn't have 'home economics' or anything approaching education in financial literacy.
American learn financial literacy from their parents and whatever they absorb through osmosis from their environments, which has led to the situation you describe.
If the forgiveness program satisfies the debt then it isn't true that people working through it aren't paying their debts, they just aren't doing it exclusively with monthly payments.
You'd need to be more than cynical to believe that.
>"how about we make sure that their high school teachers are all people who can't manage to effectively manage their money"
How does this follow? If I'm aware that becoming a high school teacher ensures that I can borrow money to go to college that will be repaid by the government after 10 years of working, and I take advantage of that, how exactly does that show that I can't effectively manage money?
>creating a strong financial incentive to become a teacher but only if you can't pay your debts
That doesn't follow either. It has nothing to do with whether you can pay your debts or not. Most of the people who qualify for this program would have paid their loans off had they not been aware this program existed.
Instead they chose to make minimum payments and use the money saved for other purposes. Nothing about that demonstrates financial illiteracy. In fact taking advantage of a rather byzantine aid program demonstrates financial literacy.
How does this follow? If I'm aware that becoming a high school teacher ensures that I can borrow money to go to college that will be repaid by the government after 10 years of working, and I take advantage of that, how exactly does that show that I can't effectively manage money?
Because the program didn't exist when you made the choice to accumulate unsustainable debts. Using the existence of the program to justify taking on that debt is like a lottery winner claiming that buying lottery tickets was a good financial decision; true, it paid off in the end, but only by luck.
>Because the program didn't exist when you made the choice to accumulate unsustainable debts.
Where are you getting this from? The program has existed for 10 years, and many similar programs where state and local governments would pay off loans if you came to work for them existed for years before that.
>unsustainable debts
Even in the case of someone who took out loans before the program existed, how does it follow that the debts are unsustainable?
What if I have $40k in student loans that I'm perfectly able to repay over 10 years, but I chose to work as a teacher knowing that one of the benefits of that career choice is that I can make minimum payments, and take advantage of this program.
PLSF has been around for quite awhile. I know lots of people who turned down scholarship money and high paying jobs in reliance on PLSF. That was be point of the program—to make it possible for people who wanted to go into public service to go to the same caliber of schools as their private sector counterparts.
I vividly remember when I was handed my tuition statement at a US college. All the courses added up to a absurd number for a single semester. As an European exchange student an additional line, where this absurd number was waived saved my ass. But still, I remember how shocked I was back then. I thought: How can all my class mates afford that rate for several semesters?
I think it is totally absurd that one of the most advanced nations on this planet is putting such a high tax on higher education. Education in general is so crucial for a developed country like the US that I believe it should be free (at least almost free).
People in Europe end up paying for the education, you just don't see it on an itemized statement. What if you add up the 2-3% of your wages across your entire lifetime?
Another thing to point out is that many colleges offer grants, scholarships, and work study such that the sticker price often isn't what gets paid.
An important part of making education free or nearly free is not the total cost born by society, but the change in incentive. If we all pay for university whether we go or not, it is more likely that we'll decide it is worthwhile to pursue an education.
This does also change how education works. In Germany, I'm told, you can't expect students to have done assigned readings. And an exchange student from Poland told me that his fellow students would typically show up for the midterms and finals only.
Though I have never taught in Germany, I can assure you that plenty of non-German students, even ones paying full freight at expensive US schools, have also not done the reading.
But in my experience, we try and pretend that we did the reading, and not complain to the overseas teacher that it was unreasonable to expect classroom discussion time to hinge upon having done the readings.
an exchange student from Poland told me that his fellow students would typically show up for the midterms and finals only
This, friend, is precisely how it ought to be. The University is a guild and administers examinations. If you pass you are admitted to the guild. Just how you pass, that's up to you, but initiative is required. We won't wipe your ass or run you through the book, one chapter per lecture. That's part of the informal training.
For almost everyone real guild isn’t entered via exam. The college degree is just a day pas to get your foot in the door somewhere. After that it’s performance that dictates whether you get to stay and whether you get promoted.
The college degree is just a day pas to get your foot in the door somewhere
No, in my experience it's that the undergraduate degree serves to get admission to a professional degree (MD, nursing, whateverelse the medical school here in town offers) that has next to nothing to do with what the first degree was about. Consequently, GPA is more important than knowledge, and with curved exams you see an unnatural hypercompetitiveness.
it’s performance that dictates whether you get to stay and whether you get promoted
It's more adeptness at office politics, but I'm a cynic and the institution is weak.
The student loan forgiveness program encourages people to take out loans they can't afford, discourages them from finding higher-paying employment opportunities in the private sector, and discourages switching jobs whatsoever because of worries about whether the new job will qualify. Once locked into a job, the employer can use this to their advantage by underpaying the employee, knowing they are less likely to hop during the income forgiveness years.
As with all market-warping programs, the inevitable result is a total mess that hurts more than it helps while creating a bureaucracy to manage the situation, which costs taxpayers while providing no useful output for society.
Although I disagree philosophically with rewarding some types of jobs over others with free money, if society were to do this, a much better way would be providing some sort of general income tax cut (like raising the standard deduction for people employed in certain industries) rather than saying "Hey, work for this job and in 10 years we will forgive all your student loans (maybe)," which is a very weird solution when you think about it.
Yeah my wife was planning on doing this with her student loan for her social work degree and I just refinanced it all to a five year loan so we could get rid of it.
I don’t know how people manage to spend $50k getting a degree in social work. Something is wrong with the system that that is allowed to happen.
This is alot like blaming the patient for getting addicted to opioids.
This nation indoctrinates the youth into believing that they are worthless bums if they don't go to college. So when they walk into the door, barely an "adult" by any stretch of the word, we put a piece of paper in front of them and say, "Sign this, or you will never get the degree you need, never get the job you need, and die cold and lonely."
So they sign that paper, unaware that the loan they incurred at the beginning of their adult life will follow them for the rest of their lives. And if the degree fails to bring in the job they were promised, tough luck. And if the Department of Education decides not to forgive their student loans after years of service to a government job or non profit, them's the brakes.
It is one of many band-aids attempted to solve the root problem, which is that education is unaffordable in America for most people. The true solution in my opinion would be to allow people to discard their student loans with bankruptcy. Suddenly the government wouldn’t be offering $200k loans for humanities degrees, and universities would be forced to reduce prices or accept lower enrollments.
Loans that are issued without regard to your credit and also are dischargeable in bankruptcy wouldn’t be workable. New graduates usually have no assets. They could declare bankruptcy immediately, and usually are young enough where they would have plenty of time to clear up their credit before needing to buy a house, etc.
Then maybe there should be no student loans. The idea of a debt that can't be discharged in any circumstance sounds like a form of slavery to me. Schools could charge a rate that a part-time minimum wage employee can pay.
While true in a simple sense, the meat of the story for me was that he expected a financial services company to act in his interest. Personally, I don't think it is a great situation when you have to be a cynical bastard to get a fair shake at consumer-level finance.
There is a line in here that the $70,000 he's already paid amounts to nothing, but what does that mean? That the $70,000 doesn't count towards his loan forgiveness, of which some amount has to be reached? The article, or at least one of the quotes, made it sound like it didn't count in general, which I find hard to believe. Was he really just paying the interest all this time?
He wasn't paying down any of the principal, presumably because the loan forgiveness program would take care of it.
> Because of his 8.25 percent interest rate, which he could not refinance due to loan rules, even those higher payments weren’t putting a dent in his principal. So the $70,000 or so that he did pay over the period amounted to nothing, and he’ll most likely pay at least that much going forward.
Graduated repayment plans are basically start off interest only and ramp up every two years. If you're mistakenly pursuing PSLF with one, you'd likely want to take the longest horizon payment plan, so the ramp up is slower.
Thanks. Sounds like the law was structured this way to avoid exactly this scenario, that people would purposefully avoid paying off what they could, pay only the interest (or the minimum amount acceptable to the loan company) and then stick the government with the remainder.
I'll be honest, this is a shitty situation for this guy, and maybe he was misled, but this does seem to fall under the "if it's too good to be true" category. The idea of trying to game this situation by paying the minimum possible should have set off alarms bells with everyone involved, like, every month. I'm surprised it took so long for the issue to surface.
> people would purposefully avoid paying off what they could, pay only the interest (or the minimum amount acceptable to the loan company) and then stick the government with the remainder
Bear in mind that the standard repayment plan is 10 years, and PSLF forgives debt remaining after 10 years. Without a change in repayment plan, there is no benefit to PSLF.
Where the law protects the common good is disallowing graduated payment plans access to PSLF, as it's the only non-standard plan that doesn't factor in income. I donno what Shafer's income is, but his district currently starts licensed teachers with a master's off at 40k[1]. If we assume he accrued 4 years exp while pursuing his Master's, then he's at 45k. But running the numbers, paying back 70k at 8.25 percent interest means a monthly payment of $850, so unless his wife is a doctor, it seems like he'd qualify for some sort of income plan.
Personally, given my modest loan amounts, favorable interest rates, and decent wage I found it difficult to qualify for PSLF without some extreme retirement savings planning -- maxing out both a 403b and a 457b is allowed, but it's rare for folks to have access to both. Deferred income plans like those reduce your AGI, which is what repayment plans are keyed in on. Things that don't reduce AGI include: union dues, mortgage payments, rent, car payments, medical expenses, or dependents.
As part of PSLF, you’re required to file an annual certification: https://studentaid.ed.gov/sa/sites/default/files/public-serv.... The certification clearly says that a payment only counts if it is under one of the income driven repayment plans or one of the non-income driven repayment plans with a payment higher than what it would be on the standard 10-year plan (page 3).
Moreover, the certification states PHEAA is require to tell you whether your payments are qualifying and how many qualifying payments you have left. I suspect the form correspondence sent by PHEAA met those requirements and this guy simply did not notice.
Yeah, the article mentions that the reporter went through the the guy's paperwork and found exactly that on the back of one of the statements, that none of the payments qualified for the loan forgiveness. The reporter argues that it should have been more visible.
I mean I think the government should exercise its discretion to prevent injustice in situations like this. But it’s not some crazy Kafkaesque situation. The government forgives tens of thousands of dollars of loans to you, and all you have to do is meet a handful of requirements.
All of this insanity could be solved if student loans were treated like any other loan. If student loans could be dismissed in bankruptcy then it would align the interests of lenders and students. As is in the current system, since loans cannot be dismissed, it turns into practically guaranteed profit for the lenders. In the worst case they can garnish wages so the equation changes from repayment to lifetime earnings of at least $x --- loans as 'lifetime rent' packages.
This has completely bastardized education in purpose, cost, and quality. The US now literally pays more per capita [1] for higher education than Germany. Germany has subsidized 'free' education for everybody, including foreigners.
Like all things, I'm certain the current system started out with good intentions -- probably with some good feeling and wholesome name like 'equal access to education act.' But instead of positively changing things, it seems to mostly have just distorted what was already there. For instance giving a loan, which now regularly surpass 6 figures as tuition raises in response to the availability of 'free' money, for somebody to go study a field that's going to have no meaningful impact on their future earnings is simply exploitative. It's take advantage of naivete and the inability to dismiss that loan. Nobody in a million years would do that if loans could be dismissed.
This would leave the less productive degrees to be primarily the domain of the 'bourgeois' and I don't really see that as a problem. Their family and connections can subsidize the value of such education if they see fit -- people from less privileged backgrounds do not have that luxury. And those from less privileged backgrounds are arguably even more susceptible to the belief that if they just get a degree, any degree, they'll be able to get, nay - be entitled to, a great job. Less privileged tends to imply that one's parent(s)s did not manage to obtain 'great jobs' themselves, and so may be less aware of the conditions to find such a job. In any case, the intersection of this myth and reality is something that never ends well.
If student loans could be dismissed in bankruptcy, there would be approximately no student loans. Why would a bank ever issue one when the student's financially optimal move is to take the loan, finish school, and then immediately file for bankruptcy?
Student loans are difficult for this reason precisely - the people who need the money have no assets, and they're borrowing to buy something intangible that thus can't have a lien against it.
You can't assume the status quo, in which I'd agree you'd be correct.
The big deal right is now that is almost certainly a causal relationship between the skyrocketing cost of education and the ease of access of student loans. If you have a customer base who thinks your product has a practically infinite value and they access to x funds, then your price is going to approach x. Lenders are incentivized to just keep pushing x higher and higher. Their price point limitation is going to be when their lifetime 'rent' of real lifetime expected earnings starts to become comparable to the real value of their loan. A quick search shows real median lifetime earnings for low value majors at about $800k. 15% there would be $120k. It's actually a good bit higher than that due to reasons outside the scope of this post.
When loans are constrained to the expected earnings of an individual, there is going to be an incentive to offer loans that the individual not only can but will payoff rather than take the decade long credit hit of bankruptcy. Will somebody pay off a loan that's 70% of their disposable income? Probably not. Will somebody pay off a loan that's 5% of their disposable income? Probably.
This is what I meant by dismissal aligning the interests of lenders and students. Students obviously want loans they can comfortably pay off, and if loans were dismissible then lenders who would want to create loans that also fit this criteria. Instead we have this bizarre system creating results like your barista having an education that was supposedly worth 6 figures.
I don't think I understand your argument. What would change such that immediate bankruptcy filing after graduation would no longer be the obviously correct move? A degree would have to be astoundingly cheap for this to not work out - bankruptcy typically costs <$3000. Add in the cost of it being on your credit report, which is fairly low given that few people need large sources of credit in their 20's beside student loans, and its hard to imagine it costing all-in more than $10k. Just living expenses on a 2-year degree are going to run higher than that, even if tuition somehow drops to near $0.
If an individual graduates at 22 that stain on the credit means they're going to struggle with basic credit related issues. Until the age of 32 they'd struggle with housing, transportation, and even many employers check applicant's credit ratings -- any sort of security clearance work or entrepreneurial enterprise would be almost entirely out of the question. And on top of this, most loans require a guarantor.
Aside from the coercive effects, I think most people are genuinely well intentioned. I don't think most people's initial instincts when borrowing money is to go see if they can run off with it. But right now with lenders constantly pushing up the cost of education they are not only making it less likely people are able to reasonably pay off their loans, even if they wanted - but simultaneously destroying any notion of good will. There is no reason this need be the case, and indeed in a time when lenders and students' interests are aligned I think the true value of the service they're providing would be seen once again.
Loan servicing really seems like a bounded enough problem that it should be solvable by a rules based expert system. Why is this shit so hard? Where's the unbounded complexity over making payments and understanding what programs you are enrolled in or qualify for?
I'm not saying it's trivial but it's not like there 15,000 different programs that need to be individually coded using data that isn't available using rules that change daily. The problem seems hard but absolutely doable to automate 98% of the work.
A large part of it is that a student loan servicing company can be more profitable if they drive students into certain programs for doing deferrals and switching plans. These programs are clearly in the benefit of the servicer, to the detriment of the borrower, and CS reps have targets around it.
If the system was fully automated, how could you ensure it yielded the maximum profit? People could just figure out the best way to repay their loan without your 'sales funnel' pushing them in the direction you want to go.
An automated company has no need to try to maximize short-term profits from individual users, it should optimize for long-term value to the most number of users, right?
Driving adoption of the platform to the most users and ultimately maximizing aggregate long-term profit and value simultaneously?
Fortunately, we had the means and a low enough balance to put it on a high limit balance transfer and pay it off.
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