Student Loan Repayment, Part I

So, here’s the thing.  I hate my loans, I hate being tied down by law school debt, and I heard about a plan for making that better by reducing the monthly payments for income-based plans from 20% to 10%.  I also discovered that under this proposal, the loan forgiveness option for public servants — that’s those persons like me who work in nonprofit/government/public service jobs full-time — would be decreased from 10 years of payments to only 5 years of payments.

And I got excited.  This would be fantastic, I thought.  I would be five years closer to being debt-free, and I would be five years closer to being a homeowner.  I would have the flexibility to start a family when I wanted to instead of having to push that off so that I can fulfill my public service working commitments to pay off law school.

A petition popped into my personal email account and I checked out the details, thought it was a good fit for me, and posted a link to that petition on my facebook wall.  I thought other students or graduates would want to know about the proposed bill and that they might want to support the initiative.

And holy moly did hell break loose on my facebook wall.  And on all of my friends’ walls who reposted the link.  People who were years out of school, who owned homes already and had families already, people who weren’t waiting for those things because of debt had a lot of opinions on the subject.  I pay all of my bills, they said.  I only went to a school I could afford, they made sure to mention.  I won’t pass my debt off onto the American taxpayers.  And so on.

And because I generally know some things about those I associate with, I know that many of those commenters had trust funds or drove Mercedes or were called to jobs that did not require advanced or particularly prestigious degrees, which probably makes it a lot easier for them to spout off high-and-mighty statements about the financial choices of others.  And I wasn’t upset really, except I dislike bitterness and hatred and prefer for people to use reasonable arguments and logic when interacting with my internet spaces.  But it got me thinking:

Is accepting my ten-year loan forgiveness plan in exchange for working in full-time public service really stealing from the government?

And of course, it isn’t.  Participating in a repayment plan developed by duly elected representatives from the fifty states is certainly quite in line with my rights as an American citizen.  But, I was kind of annoyed and started thinking that perhaps I should learn a little bit more about what I was paying, where those charges came from, and how much I really “owed” America.

And let’s back up a little — I am not a “money” person.  I never took a single business, finance, economics, etc. class in college and while I can analyze a poem with the best of them, I don’t always understand financial theories and “the market.”  I only made a B+ in secured transactions.  Secured  Transactions is a course in law school where you study the Uniform Commercial Code, how people buy and sell debts, how mortgage-backed securities work, how America rips off third world countries, etc.  But, if I can’t figure this stuff out then how can I expect my facebook commenters to do any better?

So, I’m on a mission.  I’m going to figure out exactly how much money the government loaned to me, and I’m going to compare that amount to how much I currently owe to them.  I’m going to see how much profits they are making off of me if I repay over 25 years, or if I repay over 10 years, or if I participate in my public service loan-repayment plan.  And then we’ll see how the world feels about loan forgiveness.

What I know right now is this:  no one in this country is missing any meals because I went to law school.  On the contrary, the Direct Loan program’s weighted average subsidy rate is estimated to be -16.77 percent in Fiscal Year 2012.  For you non-finance people out there, this means that the government is EARNING money on the student loan program (as in, not losing money) at a rate of 16.77% this year.  And that’s including the ten-year public service payoff plan that I’m participating in, people who are defaulting and not paying because of hardship and people who are unemployed due to our terrible economy.  So imagine what that number would be in a good year. 

Edit:  another article I’ve read seems to question if risk is factored into subsidy rates so I’m rescinding this statement until I know for sure.

Update:  “Subsidy rates represent the Federal portion of non-administrative costs—principally interest subsidies and defaults—associated with each borrowed dollar over the life of the loan. Under Federal Credit Reform Act rules, subsidy costs such as default costs and in-school interest benefits are embedded within the program subsidy[.]”  So, I’m pretty sure my original statement is right.  But it’s not like they make this easy to understand. 

And also, in case this needs to be said, I pay my bills.  I save my money.  I went to a private university for free, and paid for my own living expenses.  I take my lunch to work most days, and I wear my shoes until they fall apart.  I have quite a lot going for me and, compared to others who are really suffering under the weight of tremendous debt and a terrible job market, I’m doing pretty great.  But I’m annoyed for all of us that our character and value to society are so easily attacked because we are willing to say that the current system is not working, and I want to know a little more about all of this  drama.  

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7 comments

  1. Sarah

    You know what? I really do not like the mentality of your angry friends. Education and health care are fully funded by tax dollars in many countries, but we spend our money on wars and the military. Meanwhile, those other countries are surpassing us in education, technology advancements, energy, and life expectancy. Sounds like we’ve got our priorities all screwed up when instead of educating and keeping our citizens healthy, we want to send them off to die in wars.

    Just because things were the way they were, and someone had to pay x dollars for their education/healthcare, does not mean that we should not try to change those things and make education and healthcare more affordable as they have done in other countries. /steps off soapbox.

    • pinkbriefcase

      Thanks, Sarah! I totally agree — when we look at our country right now, the system is often rigged so the rich get richer and the poor stay poor. Education is the main method for changing your position, but with costs sky-rocketing we have to do something.

      And, I don’t think any my FB friends meant any harm. However, some of my other friends had comments so personal that they had to disable their walls. I think fiscally conservative Americans need to start practicing a little compassion in their personal beliefs, but perhaps that’s best for another conversation. :)

      • Sarah

        Exactly. We have a “pull yourself up by your bootstraps” mentality, but the problem is that people are burying themselves in debt in order to reach the next rung on the ladder. We shouldn’t need to rack up tens of thousands of dollars in debt to get a degree that will earn $30k yearly! We should not have to choose what medical procedures we can afford, but rather which ones we need! It’s crazy.

        I’m sure no one meant any harm. Political, financial and religious discussions just bring out the passion in everyone. You’re right though, they need to turn that passion into compassion. =)

  2. Pingback: Student Loan Repayment, Pt. 3: compound interest will be the death of us « pinkbriefcase
  3. mrjmflynn

    Yeah, I think it’s awesome that some of your friends were fortunate enough to end up where they are but I also think there’s something to be said for what you’re doing. People should learn that we live in this world together and that we need to learn to get along and stop being so judgmental.

  4. Pingback: Going into debt: my story (abridged version) « pinkbriefcase
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