Student loan forgiveness proposals on Wall Street
When it comes to student loan forgiveness, options can leave the already stressed out borrower confused–sometimes with dash of nausea and a sprinkle of panic. Here is what is important to remember, the blame game get’s us nowhere. Chances are, if you worked to get a college education, you probably did it for the right reasons.
Robert Farrington, an MBA graduate, who launched The College Investor in 2009, offers great financial tips. In a recent article What is Obama Student Loan Forgiveness Farrington explains a few key items that relief-searching borrowers need to know:
- Borrowers need to ask about the Pay As You Earn (PAYE) program when speaking to lenders. This is an income based payment plan that allows you to make payments that “will not exceed 10% of your discretionary income.”
- After making payments through the PAYE program for 20 years, the remaining debt is forgiven.
- Under PAYE, you will owe taxes on any loan amount that is forgiven.
There are several circumstances where a borrower may be able to have student loans forgiven or deferred. The U.S. Department of Education offers a thorough discussion of how individuals who are disabled, are Veterans, work in the public sector or as teachers may find some relief.
In addition to the PAYE program, the federal government currently offers another student loan forgiveness option that involves repayment known as an Income Based Repayment (IBR) plan. This gives a qualifying borrower the opportunity to make income based payments that are no higher than 10% of income and will not exceed either a 10 or 15 year payback time.
Another option is to work directly with your lender to set up a temporary deferment or forbearance.
Wall Street and student loan forgiveness…
Where does Wall Street come in? According to CNNMoney BlackRock (BLK) Inc. has suggested a stimulus measure that could provide student loan forgiveness in a new and different way. The details are in the earlier stages but the gist of the plan (or reasoning) looks something like this…
“BlackRock estimates there are about seven million people in the U.S. that would be eligible for an FHA-approved mortgage but are burdened by student loans. The thinking is that because they are devoting a large chunk of their income to pay down student debt, they probably aren’t saving for a down payment on a house. If just one million of them are converted to homebuyers through some form of student debt forgiveness, more than three million jobs could be created, Rieder recently told CNNMoney.” – Matt Egan
A proposal like this, coming out of Wall Street no doubt is going to generate a great deal of conversations and concerns. Possibly channeling a large portion of $72 billion dollars in American student loan debt into a boost for a job creating housing market is an intriguing concept. And the current conditions of lending practices are not exactly angelic.
One thing is certain, the U.S. student loan forgiveness dialogue needs to move past placing blame while continuing to critically view the multiple factors that contribute to skyrocketing student debt and rising tuition costs. We need thinkers and problem solvers from the public and private sector working towards solutions.