Anonymous
04/23/2025 09:59
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:Anonymous wrote:What is the interest rate on government student loans? Think government borrowing rate is about 4.5%. Is interest on student loans much higher and if so why?
Current rates, which are set by Congress:
Undergraduate Students:
Direct Subsidized Loans: 6.53% (for those demonstrating financial need).
Direct Unsubsidized Loans: 6.53% (no financial need requirement).
Graduate or Professional Students:
Direct Unsubsidized Loans: 8.08%.
Parents and Graduate/Professional Students:
Direct PLUS Loans: 9.08%.
These rates are fixed for the life of the loan. They cannot be refinanced with the federal government. You can refinance with a private lender, but you lose all the protections of federal student loans (eg, PSLF program, income based repayments, etc.)
Why is the rate for undergrads 50% higher than the government’s cost of borrowing? is this meant to cover admin cost and defaults?
Because profits flow through to the Treasury and Congress has become addicted to using those interest-generated profits to fund spending and tax cuts.
That said, these are unsecured loans to fund educational consumption by teenagers. They are risky loans with high rates of default.
Anonymous
04/23/2025 09:55
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:What is the interest rate on government student loans? Think government borrowing rate is about 4.5%. Is interest on student loans much higher and if so why?
Current rates, which are set by Congress:
Undergraduate Students:
Direct Subsidized Loans: 6.53% (for those demonstrating financial need).
Direct Unsubsidized Loans: 6.53% (no financial need requirement).
Graduate or Professional Students:
Direct Unsubsidized Loans: 8.08%.
Parents and Graduate/Professional Students:
Direct PLUS Loans: 9.08%.
These rates are fixed for the life of the loan. They cannot be refinanced with the federal government. You can refinance with a private lender, but you lose all the protections of federal student loans (eg, PSLF program, income based repayments, etc.)
Why is the rate for undergrads 50% higher than the government’s cost of borrowing? is this meant to cover admin cost and defaults?
Anonymous
04/23/2025 09:40
Subject: Re:involuntary collections of student loans
Here's another solution I had proposed in a thread about this years ago:
Allow recent graduates a five-year interest free period. You have to make the payments, but it's interest free for the first five years. Then, a moderate interest rate (with zero interest, the government loses money because of inflation).
Here's my rationale:
Income-based repayment plans are a trap, because when you are in your entry-level, lower-earning years, your income-based payments barely cover the interest. Once you break into your higher-earning years, you are so far in the hole that it feels insurmountable, and you get six-figure earners who still can't afford a house or anything resembling a normal lifestyle, or they just never actually pay down the balance and the interest keeps rising and rising.
You do have to have some skin in the game in that you choose your major and career path wisely so that you ultimately set yourself up and earn enough to pay back your loans and live a decent life. But - and I don't care what your major is - often times the first five years after graduation are tough. Ask the graduating Class of 2009!
Let people take some time to find some footing into their careers and pay a fixed percentage and chip away at the balance, not have it grow out of control. If you "make it" soon enough after graduation, good for you, you can pay a bit more to decrease the burden later, or you can squirrel away some savings. Once those five years pass, you should be expected to have your feet on the ground and get past the entry level grunt stage and start paying in higher amounts.
I would even suggest that this policy come with abolishing the income-driven plan altogether after those five years.
So, in short, everyone gets 15 years to pay back their loans in full. Five years interest-free. Ten years to pay the remaining balance on a standard plan, let's say at 5% interest. Nobody pays a higher total amount than they started with. Nobody makes a payment only to see the balance increase rather than decrease.
Allow recent graduates a five-year interest free period. You have to make the payments, but it's interest free for the first five years. Then, a moderate interest rate (with zero interest, the government loses money because of inflation).
Here's my rationale:
Income-based repayment plans are a trap, because when you are in your entry-level, lower-earning years, your income-based payments barely cover the interest. Once you break into your higher-earning years, you are so far in the hole that it feels insurmountable, and you get six-figure earners who still can't afford a house or anything resembling a normal lifestyle, or they just never actually pay down the balance and the interest keeps rising and rising.
You do have to have some skin in the game in that you choose your major and career path wisely so that you ultimately set yourself up and earn enough to pay back your loans and live a decent life. But - and I don't care what your major is - often times the first five years after graduation are tough. Ask the graduating Class of 2009!
Let people take some time to find some footing into their careers and pay a fixed percentage and chip away at the balance, not have it grow out of control. If you "make it" soon enough after graduation, good for you, you can pay a bit more to decrease the burden later, or you can squirrel away some savings. Once those five years pass, you should be expected to have your feet on the ground and get past the entry level grunt stage and start paying in higher amounts.
I would even suggest that this policy come with abolishing the income-driven plan altogether after those five years.
So, in short, everyone gets 15 years to pay back their loans in full. Five years interest-free. Ten years to pay the remaining balance on a standard plan, let's say at 5% interest. Nobody pays a higher total amount than they started with. Nobody makes a payment only to see the balance increase rather than decrease.
Anonymous
04/23/2025 09:39
Subject: involuntary collections of student loans
Anonymous wrote:What is the interest rate on government student loans? Think government borrowing rate is about 4.5%. Is interest on student loans much higher and if so why?
Current rates, which are set by Congress:
Undergraduate Students:
Direct Subsidized Loans: 6.53% (for those demonstrating financial need).
Direct Unsubsidized Loans: 6.53% (no financial need requirement).
Graduate or Professional Students:
Direct Unsubsidized Loans: 8.08%.
Parents and Graduate/Professional Students:
Direct PLUS Loans: 9.08%.
These rates are fixed for the life of the loan. They cannot be refinanced with the federal government. You can refinance with a private lender, but you lose all the protections of federal student loans (eg, PSLF program, income based repayments, etc.)
Anonymous
04/23/2025 09:38
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:
I'm not sure what policy would enable this, but we need to get the cost of education to be down to what you could pay off with a few summer jobs. Not free, but something that every graduate could pay, reasonably, with 12 months of paid entry-level full time work and/or part-time campus jobs. This takes a combination of strict regulation, pulling back on easy money from loans, and a hard crackdown on administrative bloat.
+1. Even at public state universities the costs getting out of hand - it seems like every year the states reduce their funding, leaving students to make up the difference. And the situation will get even worse as Virginia and Maryland lose out on tax revenue from fired feds.
Anonymous
04/23/2025 09:35
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:Anonymous wrote:We are headed back to debtors prison when they deduct it from your pay and people end up on the street.
Income based repayment plans are universally available and have been common for years in the student loan world. If a young professional makes 40k annually and therefore the $1,500 monthly installment payment on their 200k student loan balance isn't affordable, all they have to do is contact the loan servicer and document the need for a modified income based minimum payment.
Canceling debt is never a wise long term solution. Ii
Unless you are a bank, airline, small business, farmer, automaker…
We did that and the only thing they would offer was paying just the interest which was almost the same amount. Even the standard 1500 monthly payment pays like $8 towards principal. Student loans are a total racket and they've been structured in a way to never pay them off.
Anonymous
04/23/2025 09:29
Subject: involuntary collections of student loans
What is the interest rate on government student loans? Think government borrowing rate is about 4.5%. Is interest on student loans much higher and if so why?
Anonymous
04/23/2025 09:23
Subject: involuntary collections of student loans
Anonymous wrote:If you take out a loan you need to repay it. It’s that simple.
No more Starbucks. Forget about upgrading your iPhone. Door Dash isn’t a necessity. Vacations are for people that actually save money and aren’t deep in debt. It’s time for a second or third job. You can no longer afford all of your streaming services. Discretionary things like drinks with friends aren’t in the budget. Life is hard when you fail to manage your finances.
First of all, let’s stop vilifying people for being pressured into making a huge financial commitment before they even graduated HS without having the bottom line explained to them. Not everyone has parents or other adults in their lives who can break it down for them so that they will know what they are getting into. Before you say, “Well they should have figured it out on their own!” let me remind you…they are teenagers. Frontal lobe still underdeveloped.
Also, do you actually know any young professionals? Because the life you described is me as a young professional in the 90s. With a salary of $25k, I could afford an apartment, a reliable car, treats, and travel! My daughter, with no debt and a salary of $52k, had to live at home for her first year to save money and is still having to scrimp and save. Almost every college grad I know has to live at home for at least a year, either because they can’t find a job or living expenses are so out of control that their salary doesn’t cover it.
Anonymous
04/23/2025 09:20
Subject: involuntary collections of student loans
Anonymous wrote:Most IBR plan recipients switched to Biden's SAVE plane in 23-24. There is now litigation pending whether the SAVE plans are legal. So people on SAVE plans are being forced into forbearance.
The Biden administration sold millions of borrowers a bill of goods and now they are screwed.
Anonymous
04/23/2025 09:08
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:We are headed back to debtors prison when they deduct it from your pay and people end up on the street.
Income based repayment plans are universally available and have been common for years in the student loan world. If a young professional makes 40k annually and therefore the $1,500 monthly installment payment on their 200k student loan balance isn't affordable, all they have to do is contact the loan servicer and document the need for a modified income based minimum payment.
Canceling debt is never a wise long term solution. Ii
Income-based repayments are in a purgatory state right now because of staffing cuts at the Dept of Ed.
Most IBR plan recipients switched to Biden's SAVE plane in 23-24. There is now litigation pending whether the SAVE plans are legal. So people on SAVE plans are being forced into forbearance. Meanwhile, if they want to switch out of SAVE to another IBR plan, there is a massive bottleneck at Dept of Ed to get it approved because of the staffing cuts. Loan servicers are saying it will take many months for loans to be switched to another IBR.
It's literally something out of Kafka's The Metamorphosis.
Anonymous
04/23/2025 08:58
Subject: involuntary collections of student loans
Anonymous wrote:We really need a system that distinguishes between in-state public education and everything else. It is in society's interest to have an affordable public college system that doesn't burden 21 year olds with loans. That's what we need to build and subsidize - affordable public colleges for qualified students. And everything else - private universities, LACs - should sink or swim with market demand. There isn't ever going to be public support for forgiving the loans of someone who chose to go a gazillion dollars in debt to attend NYU or Colby. And retroactively forgiving those loans does nothing to make college more affordable for this generation of students. Focus on public education, and let market forces sort out how private universities go about attracting students. I strongly suspect the cost of private colleges will go down significantly if we make it difficult for teenagers to go into debt to attend, especially when they have very good and affordable in-state alternatives.
I agree completely with this.
Plus, I disagree with both extremes (blanket forgiveness is bad, but so is the attitude here that student loan borrowers deserved to be kicked in the teeth while they're already down). Nobody is addressing the COST of colleges. Easy loans has been a terrible idea, and I don't care if it was a Democrat or Republican policy. It's just allowed colleges to inflate the cost with abandon.
I'm not saying that student loan borrowers shouldn't be responsible. But I do think interest rates should be lower. Not zero, but not predatory. Give people a chance ot pay them back and not let the balances get out of control. Yes I get the argument that they signed the promissary note, they had the information about compounding interest blah blah blah. The real problem is that student loans are NOT like mortgages or car notes. Not only is there no collateral, it's NOT the same responsible-adult decision as taking on one of these types of loans. It's way more irresponsible for someone who makes $60K to finance a $100K car, and it's irresponsible for banks, a la 2008, to give someone who makes $75K a mortgage for a $750K house with 3% down. It's also irresponsible for the borrower, because they know what their income is.
18-22 year old student loan borrowers do not know what their incomes will be! Period. Yes, everyone likes to cite the strawman cases of $200K gender studies majors. But people with STEM degrees are also having a tough time in the market because of the tech recession and AI. How are they supposed to predict that? Are we expecting expert-level market analysis from 18-year-old Computer Science majors? Analysis of the job market decades into the future? We are asking people to make financial decisions on vague hypothetical income. That's ridiculous.
I'm not sure what policy would enable this, but we need to get the cost of education to be down to what you could pay off with a few summer jobs. Not free, but something that every graduate could pay, reasonably, with 12 months of paid entry-level full time work and/or part-time campus jobs. This takes a combination of strict regulation, pulling back on easy money from loans, and a hard crackdown on administrative bloat.
Anonymous
04/23/2025 08:54
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:We are headed back to debtors prison when they deduct it from your pay and people end up on the street.
Income based repayment plans are universally available and have been common for years in the student loan world. If a young professional makes 40k annually and therefore the $1,500 monthly installment payment on their 200k student loan balance isn't affordable, all they have to do is contact the loan servicer and document the need for a modified income based minimum payment.
Canceling debt is never a wise long term solution. Ii
Unless you are a bank, airline, small business, farmer, automaker…
Anonymous
04/23/2025 08:53
Subject: involuntary collections of student loans
The most diabolical thing is that they are resuming payments while ALSO suspending the income-based repayment plan options.
So they are turning on payments at the full "standard" 10-year repayment amount without any regards as to whether someone can afford that payment based on their income.
Really diabolical. It's going to crush credit scores for Millennials and elder Gen Z.
So they are turning on payments at the full "standard" 10-year repayment amount without any regards as to whether someone can afford that payment based on their income.
Really diabolical. It's going to crush credit scores for Millennials and elder Gen Z.
Anonymous
04/23/2025 08:52
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:If you take out a loan you need to repay it. It’s that simple.
No more Starbucks. Forget about upgrading your iPhone. Door Dash isn’t a necessity. Vacations are for people that actually save money and aren’t deep in debt. It’s time for a second or third job. You can no longer afford all of your streaming services. Discretionary things like drinks with friends aren’t in the budget. Life is hard when you fail to manage your finances.
Ok Dave Ramsey… 🙄
People can learn a lot from Dave Ra.sey a out avoiding debt and getting out of debt. Hard work and self discipline can make one's life much better!
Anonymous
04/23/2025 08:52
Subject: involuntary collections of student loans
Anonymous wrote:Anonymous wrote:We are headed back to debtors prison when they deduct it from your pay and people end up on the street.
And so your solution is for the taxpayers to pick up the tab for other people's degrees? Sorry, no.
But big auto, banks, businesses under PPP, farmers affected by tariffs— these all deserve buyouts more than kids getting a college degree. We worked hard to get our kids through without loans, and I’m not saying I agree with college loan forgiveness— especially without strings attached. But, the hypocrisy of bailing out businesses and not student loans is gross.