Student Lending Modifications:  Hey, It’s a Start…

…but only that.

The word is out that the President will be announcing executive orders to assist college students and graduates who are mired in debt.  The changes, which accelerate congressional actions, are threefold:

  • The maximum repayment is to be capped at 10% of income instead of the present 15%;
  • Any debt remaining will be forgiven after 20 years instead of the present 25 year period;
  • Loans from two existing programs will be consolidated at a rate approximately .5% lower than it currently is.

The expectation is that the changes will apply to approximately 7.5 million people with individual savings of about "several hundred dollars" monthly.  Let’s do a back-of-the-envelope exercise to ascertain the effect here.  Assume that there are 7.5 million affected with an average monthly savings of $300, or $3600 annually.  The total annual savings are in the vicinity of $27 billion (7.5M @ $3600), which is less than 3% of the approximately $1 T owed for higher education.

It’s a start, but it amounts to tinkering with the machinery.  It doesn’t go to the root issues that face our youngsters.  First, that the rate of inflation for tuition continues to rise at a clip disproportionate to the overall CPI and is now far more outsized to the average family income than it was several decades ago.  Second, it doesn’t address the fact that there are simply very few sustainable, living wage jobs for graduates.  Until these core issues are addressed, either by the market or the government via some workable, commonsense policy, then the kids are going to continue to face difficulties that force them to postpone their true adult lives, out of the nest and on their own.

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