One final post in the series. I found this at CNN:
However, the White House announcement doesn’t offer much new help for existing borrowers who are already eligible for the income-based repayment plan and who have been able to consolidate federal loans for more than a year, said Mark Kantrowitz, publisher of FinAid.org.
“It preserves the cost of the loans,” Kantrowitz said. “And existing borrowers who are up to their eyebrows in debt, they don’t get the benefit” of the lower payments on the income-based repayment plan.
What this sounds like, as Elie Mystal over at Above the Law points out, is announcing old (2009) rules on student loans (15% of discretionary, 25-year sentence) as if they are new ones. The lower percentage and 20-year offer is only being made to current (class of 2015 or later) students.
So it’s a non-solution, unless you didn’t know that IBR was there. It benefits my younger American friends in Japan, of course, because the payment is based on your AGI (adjusted gross income). As you know because you fill out a tax form and file your Form 2555-EZ, with it, your adjusted gross income is usually close to: ZERO. So your IBR payment is: ZERO.
[Update #1 10/26/11:
Now that all the details are out, it looks like the actual benefits are:
1) If you are in college, the 10% of discretionary, 20-year period term for IBR is moved up to next year (from 2014);
2) If you have Direct Loans already AND federally-backed loans from a bank (so called Staffords), you can put them all with the federal government and get somewhere between a 0.25% and 0.50% cut on the interest rate;
3) If you have already graduated, you aren’t getting anything new. IBR has been around since 2009, and had its earlier incarnation as ICR, from 1995. About all Obama’s Denver initiative is doing is advertising that there is IBR, and that you are plum stupid if you keep federally-backed loans with an outside lender, rather than use the Direct Loan service. (That’s why Sallie Mae’s stock dropped so much yesterday. They make money from servicing the federally-backed loans.)
Since federally-backed loans, and Direct Loans, have so many deferment provisions, all these repayment / amortization issues amount to one big game of chicken. Slowly, slowly, repaying student loans is moving to a kind of surtax regime, where the poverty level income is exempted, and then you pay either 10% or 15%–unless you become the eternal community college student, where the can is kicked down the road for as long as you are. At death, the note cancels. So at some point, these loans become less of a loan and more of a credit life insurance policy (where your payment is assuring that the rest of the balance disappears.)
I am disappointed, because I believe in reform, in “Yes We Can!” and “We Can’t Wait!” But I still say Denver is a step in the right direction.]