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IN LATE 1965, President Lyndon Johnson stood in the modest gymnasium of what had once been the tiny teaching college he attended in Texas and announced a programme to promote education. It was an initiative that exemplified the “Great Society” agenda of his administration: social advancement financed by a little hard cash, lots of leverage and potentially vast implicit government commitments. Those commitments are now coming due.
“Economists tell us that improvement of education has been responsible for one-fourth to one-half of the growth in our nation’s economy over the past half-century,” Johnson said. “We must be sure that there will be no gap between the number of jobs available and the ability of our people to perform those jobs.”
To fill this gap Johnson pledged an amount that now seems trivial, $1.9m, sent from the federal government to states which could then leverage it ten-to-one to back student loans of up to $1,000 for 25,000 people. “This act”, he promised, “will help young people enter business, trade, and technical schools—institutions which play a vital role in providing the skills our citizens must have to compete and contribute in our society.”
Almost a half-century later these modest steps have metastasised into a huge, federally guaranteed student-loan industry....
Johnson’s lending programme was altered almost straight away. The intention of providing students with an education through “business, trade and technical schools” was expanded to include the full, imaginative panoply of American education, regardless of economic utility. Interest rates and terms have all been adjusted numerous times.
Critics allege a viciously wasteful circle: the size of the loan pool expands to enable students to pay ever higher fees to schools whose costs expand because money is coming their way. That was just about sustainable in the good times, a lot harder when there are fewer jobs to be had.
Signs of strain are everywhere. In September the Department of Education reported that in 2009 the default rate, which is defined as non-payment for 270 days, had reached 8.8%. By some estimates delinquency rates, an earlier indicator of stress, for student loans exceed 10%, ten times that for credit cards and car loans....
This is despite punitive laws to enforce repayment. In response to clever students burying their obligations in court during the 1970s, anti-default provisions were imposed to make it almost impossible to shed student loans in bankruptcy. In 1991 the statute of limitations for non-repayment was eliminated.
There are increasingly loud calls for reform of the system, with demands that range from a full-fledged bail-out of borrowers to a phased curtailment of government lending. For now the bail-out is the bigger priority for politicians. For many years government-backed loans were distributed through banks which earned a fee and occasionally had to assume a little bit of risk, but in 2009 the business was entirely absorbed by the federal government.
The changes announced this week are designed to ease the pressure on struggling graduates. Borrowers who qualify will get payment relief, not debt relief. Their payments will be capped at 10% of income rather than 15%, but interest will continue to be applied to their underlying debt and may expand rather than contract over time. There will also be forgiveness after 20 years, rather than 25. The administration says these changes will have no cost to taxpayers. If there is one lesson of the past 46 years, it is to be dubious of that claim.
Originally posted by TDawgRex
Great...first my taxes go to pay for those who are too lazy to find employment.
Now to top it off my taxes go to pay (or forgive) student loans, paperwork they signed by the way, so that these idiots that infest our educational systems can later tell me that I need to pay even more taxes later in life.
Lovely!
Originally posted by Maxmars
Student loans in America: Nope, just debt - The next big credit bubble?
Originally posted by alfa1
Originally posted by Maxmars
Student loans in America: Nope, just debt - The next big credit bubble?
Maybe its not too late to implement a "means test" for repayment like here in Australia.
Your requirement to pay the loan back is linked to whatever income you are getting.
The HECS scheme here for students is such that if you earn less than $44912, then you pay NOTHING back for that financial year.
As your income goes higher, you progressively pay more of that HECS loan back.
Originally posted by AzureSky
Originally posted by TDawgRex
Great...first my taxes go to pay for those who are too lazy to find employment.
Now to top it off my taxes go to pay (or forgive) student loans, paperwork they signed by the way, so that these idiots that infest our educational systems can later tell me that I need to pay even more taxes later in life.
Lovely!
Your taxes go to pay federal loan interest. Nothing else, nothing more.
Stop attempting to troll, generalization is annoying.