
A Student Loan Nightmare: The Teacher in the Wrong Payment Plan - pxeboot
https://www.nytimes.com/2017/10/27/your-money/paying-for-college/student-loan-payments.html
======
seibelj
The student loan forgiveness program encourages people to take out loans they
can't afford, discourages them from finding higher-paying employment
opportunities in the private sector, and discourages switching jobs whatsoever
because of worries about whether the new job will qualify. Once locked into a
job, the employer can use this to their advantage by underpaying the employee,
knowing they are less likely to hop during the income forgiveness years.

As with all market-warping programs, the inevitable result is a total mess
that hurts more than it helps while creating a bureaucracy to manage the
situation, which costs taxpayers while providing no useful output for society.

Although I disagree philosophically with rewarding some types of jobs over
others with free money, if society were to do this, a much better way would be
providing some sort of general income tax cut (like raising the standard
deduction for people employed in certain industries) rather than saying "Hey,
work for this job and in 10 years we will forgive all your student loans
(maybe)," which is a very weird solution when you think about it.

~~~
noja
So why was the program introduced, if everything was running so well?

~~~
seibelj
It is one of many band-aids attempted to solve the root problem, which is that
education is unaffordable in America for most people. The true solution in my
opinion would be to allow people to discard their student loans with
bankruptcy. Suddenly the government wouldn’t be offering $200k loans for
humanities degrees, and universities would be forced to reduce prices or
accept lower enrollments.

~~~
rayiner
Loans that are issued without regard to your credit and also are dischargeable
in bankruptcy wouldn’t be workable. New graduates usually have no assets. They
could declare bankruptcy immediately, and usually are young enough where they
would have plenty of time to clear up their credit before needing to buy a
house, etc.

~~~
seibelj
Then maybe there should be no student loans. The idea of a debt that can't be
discharged in any circumstance sounds like a form of slavery to me. Schools
could charge a rate that a part-time minimum wage employee can pay.

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jeffdavis
The student loan forgiveness program is a terrible idea no matter what your
political leanings.

It's basically a very weird way to compensate people for certain kinds of
jobs.

The accounting is a mess, it's a promise for the future so it doesn't show up
as a budget problem tofay, but will later.

It's very uneven -- some people take out huge loans and other borrow more
modestly. The borrowed money can be used for lots of non-educational things,
so it creates an incentive to borrow more than you really need.

And then it's a big yes or no at the end, not gradual, so it sticks people to
jobs and makes a big dramatic event after ten years.

~~~
Spooky23
I strongly disagree. It’s one of the few tools available that ensures that
qualified, well educated teachers are available everywhere.

The program is a great example of the power of the federal government to lift
all boats, even when the local governance doesn’t care at all. We see lots of
examples of mostly red-state governance where passing costs off to other
jurisdictions is essentially government policy. (Example:
[https://www.thedailybeast.com/nevada-sued-for-greyhound-
ther...](https://www.thedailybeast.com/nevada-sued-for-greyhound-therapy-for-
mentally-ill-patients) )

This doesn’t let them do that for several professions.

~~~
beisner
Or, ya know, you could pay teachers more across the board and do away with the
loan tomfuckery.

~~~
Spooky23
Good luck getting your local school-board to fund $90k starting salaries for
teachers!

~~~
vkou
Well, they certainly find such salaries for administration. (Something about
paying market rates.)

~~~
forapurpose
> they certainly find such salaries for administration

This is one of those claims that in a way has become 'common wisdom', but that
I've seen no actual evidence of. I wonder if it's just one of those talking
points of people who want to cut taxes that has never been challenged or at
least defined, like "government waste". It's like an end-user saying 'my
computer's software is buggy' \- that doesn't tell me anything, and for all I
know it's your power supply, monitor, or a million other possibilities, or
even a matter of perception by a user in a bad mood or with a bias.

Especially we don't know the problem definition: Which administrators are
overpaid? How frequently? Is it certain administrative jobs? In certain size
districts? Is it due to some other problem? And which administrators are
underpaid?

Finally, while we should pay attention to these issues, let's not
catastrophize every problem into a organizational disaster. I know plenty of
administrators in business who are overpaid; the perfect human institution
doesn't exist.

~~~
germinalphrase
I think it's a meme that has carried over to k12 from stories about massive
administration growth in higher ed relative to teaching staff.

It also is challenging to make apples:apples comparison between teacher and
administrator salaries as the contracts are structured very diferently. That
said - anecdotally, admin salaries are commonly 2x+ average teacher salaries
in districts that I have had experience teaching within.

~~~
secabeen
And even in higher-ed, it's largely a false narrative as well. Overall
spending per student at state schools is down. Here are the numbers for UC:
[http://dailybruin.com/2014/11/18/tuition-rises-despite-
decli...](http://dailybruin.com/2014/11/18/tuition-rises-despite-declining-uc-
spending-per-student/)

Administrative salaries are up, but generally in line with increases in
research funding (research funding has a lot of administrative overhead. Read
OMB Circular A-21 if you want to see some example details.) Yes, there are
reports of some over-payments at the top executive levels, but just like in a
corporation, overpaying the C-Level executives by $10/mil a year just doesn't
move the needle for companies with 10's of billions of dollars a year in
revenue.

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baxtr
I vividly remember when I was handed my tuition statement at a US college. All
the courses added up to a absurd number for a single semester. As an European
exchange student an additional line, where this absurd number was waived saved
my ass. But still, I remember how shocked I was back then. I thought: How can
all my class mates afford that rate for several semesters?

I think it is totally absurd that one of the most advanced nations on this
planet is putting such a high tax on higher education. Education in general is
so crucial for a developed country like the US that I believe it should be
free (at least almost free).

~~~
jldugger
It's fine, we just import educated Europeans and let their countrymen pay for
it.

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clarkevans
I wonder how much of the specific forgiveness problem has to do with private
loan servicing. As someone who switched to direct loan servicing in 1995, I
found it refreshing to have a government official (who has no financial
incentive to deceive you) service your loan.

Before 1993, Stafford, PLUS and other student loans were guaranteed by the
Federal Government but held and serviced by private entities. In 1993, direct
student loan servicing was created and there was a way to convert your loans
to be government held and serviced. Starting 2010 only federal direct loans
are issued. The history is very political [1].

[1] [https://www.newamerica.org/education-policy/policy-
explainer...](https://www.newamerica.org/education-policy/policy-
explainers/higher-ed-workforce/federal-student-aid/federal-student-
loans/federal-student-loan-history/)

------
indubitable
All of this insanity could be solved if student loans were treated like any
other loan. If student loans could be dismissed in bankruptcy then it would
align the interests of lenders and students. As is in the current system,
since loans cannot be dismissed, it turns into practically guaranteed profit
for the lenders. In the worst case they can garnish wages so the equation
changes from repayment to lifetime earnings of at least $x --- loans as
'lifetime rent' packages.

This has completely bastardized education in purpose, cost, and quality. The
US now literally pays more per capita [1] for higher education than Germany.
Germany has subsidized 'free' education for everybody, including foreigners.

Like all things, I'm certain the current system started out with good
intentions -- probably with some good feeling and wholesome name like 'equal
access to education act.' But instead of positively changing things, it seems
to mostly have just distorted what was already there. For instance giving a
loan, which now regularly surpass 6 figures as tuition raises in response to
the availability of 'free' money, for somebody to go study a field that's
going to have no meaningful impact on their future earnings is simply
exploitative. It's take advantage of naivete and the inability to dismiss that
loan. Nobody in a million years would do that if loans could be dismissed.

This would leave the less productive degrees to be primarily the domain of the
'bourgeois' and I don't really see that as a problem. Their family and
connections can subsidize the value of such education if they see fit --
people from less privileged backgrounds do not have that luxury. And those
from less privileged backgrounds are arguably even more susceptible to the
belief that if they just get a degree, any degree, they'll be able to get, nay
- be entitled to, a great job. Less privileged tends to imply that one's
parent(s)s did not manage to obtain 'great jobs' themselves, and so may be
less aware of the conditions to find such a job. In any case, the intersection
of this myth and reality is something that never ends well.

[1] -
[https://nces.ed.gov/programs/coe/indicator_cmd.asp](https://nces.ed.gov/programs/coe/indicator_cmd.asp)

~~~
thedufer
If student loans could be dismissed in bankruptcy, there would be
approximately no student loans. Why would a bank ever issue one when the
student's financially optimal move is to take the loan, finish school, and
then immediately file for bankruptcy?

Student loans are difficult for this reason precisely - the people who need
the money have no assets, and they're borrowing to buy something intangible
that thus can't have a lien against it.

~~~
indubitable
You can't assume the status quo, in which I'd agree you'd be correct.

The big deal right is now that is almost certainly a causal relationship
between the skyrocketing cost of education and the ease of access of student
loans. If you have a customer base who thinks your product has a practically
infinite value and they access to _x_ funds, then your price is going to
approach _x_. Lenders are incentivized to just keep pushing _x_ higher and
higher. Their price point limitation is going to be when their lifetime 'rent'
of real lifetime expected earnings starts to become comparable to the real
value of their loan. A quick search shows real median lifetime earnings for
low value majors at about $800k. 15% there would be $120k. It's actually a
good bit higher than that due to reasons outside the scope of this post.

When loans are constrained to the expected earnings of an individual, there is
going to be an incentive to offer loans that the individual not only _can_ but
_will_ payoff rather than take the decade long credit hit of bankruptcy. Will
somebody pay off a loan that's 70% of their disposable income? Probably not.
Will somebody pay off a loan that's 5% of their disposable income? Probably.

This is what I meant by dismissal aligning the interests of lenders and
students. Students obviously want loans they can comfortably pay off, and if
loans were dismissible then lenders who would want to create loans that also
fit this criteria. Instead we have this bizarre system creating results like
your barista having an education that was supposedly worth 6 figures.

~~~
thedufer
I don't think I understand your argument. What would change such that
immediate bankruptcy filing after graduation would no longer be the obviously
correct move? A degree would have to be astoundingly cheap for this to not
work out - bankruptcy typically costs <$3000. Add in the cost of it being on
your credit report, which is fairly low given that few people need large
sources of credit in their 20's beside student loans, and its hard to imagine
it costing all-in more than $10k. Just living expenses on a 2-year degree are
going to run higher than that, even if tuition somehow drops to near $0.

~~~
indubitable
If an individual graduates at 22 that stain on the credit means they're going
to struggle with basic credit related issues. Until the age of 32 they'd
struggle with housing, transportation, and even many employers check
applicant's credit ratings -- any sort of security clearance work or
entrepreneurial enterprise would be almost entirely out of the question. And
on top of this, most loans require a guarantor.

Aside from the coercive effects, I think most people are genuinely well
intentioned. I don't think most people's initial instincts when borrowing
money is to go see if they can run off with it. But right now with lenders
constantly pushing up the cost of education they are not only making it less
likely people are able to reasonably pay off their loans, even if they wanted
- but simultaneously destroying any notion of good will. There is no reason
this need be the case, and indeed in a time when lenders and students'
interests are aligned I think the true value of the service they're providing
would be seen once again.

------
rayiner
As part of PSLF, you’re required to file an annual certification:
[https://studentaid.ed.gov/sa/sites/default/files/public-
serv...](https://studentaid.ed.gov/sa/sites/default/files/public-service-
employment-certification-form.pdf). The certification clearly says that a
payment only counts if it is under one of the income driven repayment plans or
one of the non-income driven repayment plans with a payment higher than what
it would be on the standard 10-year plan (page 3).

Moreover, the certification states PHEAA is require to tell you whether your
payments are qualifying and how many qualifying payments you have left. I
suspect the form correspondence sent by PHEAA met those requirements and this
guy simply did not notice.

~~~
exhilaration
Yeah, the article mentions that the reporter went through the the guy's
paperwork and found exactly that on the back of one of the statements, that
none of the payments qualified for the loan forgiveness. The reporter argues
that it should have been more visible.

~~~
rayiner
I mean I think the government should exercise its discretion to prevent
injustice in situations like this. But it’s not some crazy Kafkaesque
situation. The government forgives tens of thousands of dollars of loans to
you, and all you have to do is meet a handful of requirements.

------
Spooky23
My wife ran into a similar issue relating to a repayment plan where the
servicer fubared everything in the process of the 6 transfers between
servicers.

Fortunately, we had the means and a low enough balance to put it on a high
limit balance transfer and pay it off.

~~~
mjevans
The probably got a bonus out of shafting you in to paying it off (from their
PoV).

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zaroth
Loan servicing really seems like a bounded enough problem that it should be
solvable by a rules based expert system. Why is this shit so hard? Where's the
unbounded complexity over making payments and understanding what programs you
are enrolled in or qualify for?

I'm not saying it's _trivial_ but it's not like there 15,000 different
programs that need to be individually coded using data that isn't available
using rules that change daily. The problem seems hard but absolutely doable to
automate 98% of the work.

~~~
awakeasleep
A large part of it is that a student loan servicing company can be more
profitable if they drive students into certain programs for doing deferrals
and switching plans. These programs are clearly in the benefit of the
servicer, to the detriment of the borrower, and CS reps have targets around
it.

If the system was fully automated, how could you ensure it yielded the maximum
profit? People could just figure out the best way to repay their loan without
your 'sales funnel' pushing them in the direction you want to go.

~~~
zaroth
An automated company has no need to try to maximize short-term profits from
individual users, it should optimize for long-term value to the most number of
users, right?

Driving adoption of the platform to the most users and ultimately maximizing
aggregate long-term profit and value simultaneously?

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Cacti
There is a line in here that the $70,000 he's already paid amounts to nothing,
but what does that mean? That the $70,000 doesn't count towards his loan
forgiveness, of which some amount has to be reached? The article, or at least
one of the quotes, made it sound like it didn't count in general, which I find
hard to believe. Was he really just paying the interest all this time?

~~~
jldugger
Graduated repayment plans are basically start off interest only and ramp up
every two years. If you're mistakenly pursuing PSLF with one, you'd likely
want to take the longest horizon payment plan, so the ramp up is slower.

[https://studentaid.ed.gov/sa/repay-
loans/understand/plans/gr...](https://studentaid.ed.gov/sa/repay-
loans/understand/plans/graduated)

~~~
Cacti
Thanks. Sounds like the law was structured this way to avoid exactly this
scenario, that people would purposefully avoid paying off what they could, pay
only the interest (or the minimum amount acceptable to the loan company) and
then stick the government with the remainder.

I'll be honest, this is a shitty situation for this guy, and maybe he was
misled, but this does seem to fall under the "if it's too good to be true"
category. The idea of trying to game this situation by paying the minimum
possible should have set off alarms bells with everyone involved, like, every
month. I'm surprised it took so long for the issue to surface.

~~~
jldugger
> people would purposefully avoid paying off what they could, pay only the
> interest (or the minimum amount acceptable to the loan company) and then
> stick the government with the remainder

Bear in mind that the standard repayment plan is 10 years, and PSLF forgives
debt remaining after 10 years. Without a change in repayment plan, there is no
benefit to PSLF.

Where the law protects the common good is disallowing graduated payment plans
access to PSLF, as it's the only non-standard plan that doesn't factor in
income. I donno what Shafer's income is, but his district currently starts
licensed teachers with a master's off at 40k[1]. If we assume he accrued 4
years exp while pursuing his Master's, then he's at 45k. But running the
numbers, paying back 70k at 8.25 percent interest means a monthly payment of
$850, so unless his wife is a doctor, it seems like he'd qualify for some sort
of income plan.

Personally, given my modest loan amounts, favorable interest rates, and decent
wage I found it difficult to qualify for PSLF without some extreme retirement
savings planning -- maxing out both a 403b and a 457b is allowed, but it's
rare for folks to have access to both. Deferred income plans like those reduce
your AGI, which is what repayment plans are keyed in on. Things that don't
reduce AGI include: union dues, mortgage payments, rent, car payments, medical
expenses, or dependents.

[1]: [http://www.4j.lane.edu/wp-
content/uploads/2013/04/2016-17-Li...](http://www.4j.lane.edu/wp-
content/uploads/2013/04/2016-17-Licensed-Salary-Schedule.pdf)

------
j-c-m
TL;DR

Guy chose a payment plan not eligible for loan forgiveness.

~~~
bittercynic
While true in a simple sense, the meat of the story for me was that he
expected a financial services company to act in his interest. Personally, I
don't think it is a great situation when you have to be a cynical bastard to
get a fair shake at consumer-level finance.

