TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 2, 2013

NY Times: Relief for Student Borrowers

New York Times editorial:  Relief for Student Borrowers:

College graduates who began their careers during the Great Recession faced several long-term economic obstacles. These included lower earnings, higher unemployment rates and greater career instability — all of which made it more difficult to buy homes and save for retirement. It also made it harder to pay off student loans.

The Obama administration had this group in mind when it created the Pay As You Earn Repayment Plan for federal student loans, which allows recent student borrowers to arrange affordable payments and qualify for loan forgiveness. The program, which went into effect late last month, needs to be broadly advertised if it is to reach the people who need it most.

At least two-thirds of college graduates borrow to complete their undergraduate degrees. And there are now about 37 million borrowers with federal student loans. The Pay As You Earn program would reach an estimated 1.6 million people. It is limited to people who started borrowing during the recession, who have high debt relative to their incomes and who entered the work force at the worst possible time.

Since 2009, similar relief has been available for student loan borrowers with the Income Based Repayment program, which also allows for lower payments. But the Pay As You Earn program provides more generous relief. According to an analysis by the Institute for College Access and Success, a nonprofit group that monitors student debt, an unmarried student who graduates with loan debt of $26,600 — the average for student borrowers in 2011 — and who earns an adjusted gross income of $25,000 a year, would pay about $69 a month under the Pay As You Earn plan. The same student would pay about $103 under the Income Based Repayment program.

(Hat Tip: Mike Talbert.)

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The NYT editorial states (correctly) that the Pay as You Earn program "is limited to people who started borrowing during the recession, who have high debt relative to their incomes and who entered the work force at the worst possible time." What it doesn't discuss is who is excluded from the program.

I graduated law school in 2009. While I didn't start borrowing during the recession (and am therefore excluded from the program), I graduated with possibly the second-worst-off graduating class (the worst, I believe, being the class of 2010). I have a job and have been able to make my career go. For that, I am grateful. But it has not been easy and I am earning a LOT less than I thought I would be when I made the decision to sign up for law school. The government plan certainly does not follow an investment-backed-expectations model. If it did, it would have included the classes of 2009 and 2010. And in that regard, I think its incredibly unfair and unjust. Why should I have to subsidize those who went to school after me when, to a certain extent, they knew what they were getting in to and I did not?

Posted by: anon | Jan 2, 2013 4:45:33 PM