It doesn't matter if you're liberal, conservative, or libertarian. We all know that the student loan crisis forcing Americans into indentured servitude is wrong.
Student loan debt in the United States is at more than $1.4 trillion and counting.
- Can't be paid off without tens of millions of better-paying jobs
- Can't be discharged in bankruptcy
- Can't be stopped from growing because it serves the for-profit universities and the so-called nonprofit universities' egregious profitability
President Obama addressed America's massive student loan problem with legislation and an executive order, but nothing really changed.
President Trump is proposing changes to income contingency repayment plans and forgiveness programs in his 2018 budget.
Those proposals would be a help, but they won't stop students of all ages from remaining or becoming indentured servants to the false hopes and profiteering schemes of greedy universities.
Here's how it got this bad and why these fixes are only Band-Aids on a plague…
How the Government Got Involved
The problem starts with easy access, government-guaranteed student loans.
The U.S. government got into the student loan business in a big way with the signing of the Higher Education Act of 1965. Undergraduate students from low-income families got access to government-subsidized loans and didn't have to pay any interest while they were enrolled.
The two basic categories of loan types are Subsidized Stafford loans and Unsubsidized Stafford loans, renamed in 1988 in honor of U.S. Sen. Robert Stafford for his work on higher education.
Subsidized Stafford loan-qualifying students aren't charged any interest while they're in school. Borrowers with Unsubsidized Stafford loans have interest accrue while they're attending classes, which is rolled into outstanding balances when they leave school.
Eligibility for Subsidized Stafford loans isn't based just on income, but also on how many children in a student's family are currently in college… as well as the cost of the college. Students from middle- or even high-income families that attend expensive colleges often qualify for Subsidized Stafford loans.
Most students who take out Subsidized Stafford loans simultaneously borrow under Unsubsidized Stafford loan programs.
Dependent and independent undergraduates (a borrower is dependent if they rely on family income or co-signers) are subject to lifetime borrowing limits for both loan types. The lifetime limit for Subsidized Stafford loans is $23,000. For dependent undergraduates, the lifetime limit for both loan types combined is $31,000. The limit is $57,500 for independent undergraduates.
The burden of repaying direct government loans and government guaranteed student loans was eased in 1990 when some federal loan program borrowers got options to make Income-Contingent Repayments (ICR). Changes in 2007 opened up income-contingent repayment options to all borrowers when Congress replaced ICR with the Income-Based Repayment (IBR) program. IBR capped monthly payments at 15% of income above 150% of the then exempt poverty guidelines and provided for loan forgiveness after 25 years.
To be clear, these loans and repayment programs pertain to undergraduate borrowers. Graduate school borrowers' loan programs and repayment programs are different.
Graduate school borrowers, prior to school year 2006-07, could borrow a maximum of $20,500 a year under federal loan guarantee programs. However, in 2006 Congress lifted loan amount eligibility up to the "cost to attend set by the university" (cost meaning tuition and living expenses) under the new PLUS loan program.
With aggregate outstanding student loan debt reaching $1 trillion in 2014 – exceeding for the first time all outstanding credit card debt in the country – President Obama pushed Congress to ease repayment burdens for millions of student loan borrowers.
For undergraduates, monthly repayment amounts were capped at 10% of discretionary income, and loan forgiveness was to be granted after 20 years, as opposed to 25 years.
Additionally, the Obama administration's changes provided loan forgiveness to borrowers with graduate school debt, even if they're middle-income or high-income earners, if they have large enough debts.
It sounds nice, but that change ended up creating more issues than it solved.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.