Suzy Khimm summarizes Obama’s executive action on student debt:
Obama signed a memorandum on Monday that would allow more Americans to limit their student loan payments at 10 percent of their income. The action will expand on Obama’s “Pay as You Earn” program, which first launched in October 2011, making it available to those who took out student loans before October 2007. Those who opt into the program will have their student loan payments set according to a sliding scale based on income. The remaining balance is forgiven after 20 years; those working in public service have any remaining balance forgiven after 10 years.
The original “Pay as You Earn” program was only available to those who took out loans after October 2007 and continued to borrow after October 2011. The White House estimates that the program’s expansion will offer student debt relief to an estimated 5 million Americans.
But Derek Thompson believes the plan won’t fix the college-cost crisis:
The pay-as-you-earn plan is appropriate and targeted. It carries relatively few downsides, and it will help some students get on with their post-graduate lives. But we shouldn’t expect it to “fix” much now, because the existing program hasn’t “fixed” much already. Libby Nelson reports that just a tiny fraction of eligible borrowers are currently using Pay As You Earn. This is like giving somebody with a broken leg a half-off coupon for crutches – a perfectly decent ameliorative option that only works if the injured party chooses to use it.
Jana Kasperkevic concurs, arguing that “at the heart of the problem are the increasing tuition costs that often lead students to take on more and more debt”:
Consider this: as tuition at public four-year college increased by 250 percent, family incomes increased by just 16 percent. The increase in tuition last year amounted to a 2.9 percent increase for in-state students at four-year public college and a 3.8 percent increase for student at private colleges.
There are reasons for this increase, such as decreased funding from the government. According to CNN, US states have cut college funding by a total of $15.2 billion between 2007 and 2012. That’s a 17.4-percent drop in funding. During that time, the number of students increased by 12 percent. … Until US government tackles the issue of increasing cost of tuition and the fact that for majority of Americans going to college means taking on some kind of debt, the overall burden of student debt is only bound to increase
The editors at Bloomberg aren’t thrilled with the news either:
[T]he share of students who default, now at one in seven – its highest level in two decades. By that light, expanding access to income-based repayment is a good idea, as far as it goes. A more efficient idea, proposed by Republican Senator Marco Rubio of Florida earlier this year, would automatically enroll borrowers in those plans, rather than leaving students to wade through the details on their own. Otherwise, the students who most need those programs may not be the ones who know enough to sign up for them.
Another idea worth pursuing is effectively removing the possibility of default altogether, by having a borrower’s employer automatically deduct those income-based repayments from borrowers’ paychecks and send the money to the Internal Revenue Service. That’s what Republican Representative Tom Petri of Wisconsin has proposed, modeled on systems in the U.K. and elsewhere.
Libby Nelson notes that Congress “could take other steps to make it less likely that students need to take out loans in the first place” – but almost certainly won’t:
A decade ago, two House Republicans, including now-Speaker John Boehner, proposed cutting off financial aid at colleges that increase tuition too rapidly. Colleges strongly opposed the specter of federal price controls; Democrats refused to get on board; and the idea went nowhere. When President Obama proposed an updated version of the same idea, suggesting that Congress should some federal financial aid to reward colleges that offer good value and punish colleges that don’t, even Democrats left the idea out of their budget proposals.
That leaves student loans as the remaining tool in Congress’s college affordability toolbox. Unlike grants, they’re a moneymaker for the federal government under current accounting rules. And they’re less thorny politically because the vast majority of student loans already come from the Education Department. There aren’t other interests – like banks and colleges – to be taken into account when changing policy. Student loans aren’t the only lever Congress has over higher education policy. They’re just by far the easiest one to pull, and so lawmakers return to it again and again.
But Cardiff Garcia notes that a half-measure could be better than none:
[W]hat can be said with more confidence is that higher student loan debt has a deleterious effect on the lives of the people who have it. From [Wenli Li of the Philadelphia Federal Reserve’s] paper:
Researchers have found evidence that high debt burdens make students less likely to choose lower-paying careers such as teaching. Jesse Rothstein and Cecilia Rouse study a “natural experiment” generated by a change in financial aid policy by a highly selective university. The university introduced a “no loans” policy, in which it replaced the loan component of financial aid awards with grants. Interestingly, they find that debt causes graduates to choose jobs with substantially higher salaries, such as those in finance and consulting, and reduces the probability that students choose low-paid “public interest” jobs such as grade-school teacher or social worker. …
And from Brookings:
Dew (2008) finds a negative correlation between reduced marital satisfaction and student loan debt, positing that increased stress related to consumer debt—including student loans—could diminish marital satisfaction. About 14 percent of borrowers surveyed in 2002 reported delaying marriage due to student loan debt, up from 9 percent 15 years earlier. Over the same period, the share of borrowers who reported that they delayed having children due to student loans jumped from 12 percent to 21 percent (Baum and O’Malley 2003).
Meanwhile, Kelly Field observes that “the biggest beneficiaries of the change are likely to be graduate- and professional-school alumni with large debt balances and low-paying public-service careers”:
Consider, for example, a public defender who graduated from a private law school in 2012 with $125,000 in debt (the average that year) and has an adjusted gross income of $55,000. He could reduce his payment from $469 a month under income-based repayment to $312 under Pay as You Earn, according to the repayment estimator, and have more than $175,000 in debt forgiven, compared with less than $49,000 under income-based repayment. Ultimately, he would pay back more than $150,000 less than he would in an income-based plan.
The Dish 