Monday, July 2, 2018

A Student Debt Quiz

Answer True or False:

1.    The annualized percentage change in outstanding student loan debt was around 4 percent per year between 2007 and 2017.

2.    The number of Americans over ager 60 with outstanding student debt quadrupled between 2005 and 2015.

3.    The public service loan forgiveness program was originally enacted when President Obama was president.

4.    President Trump’s budget proposal would end public service loans starting July 1, 2018.

5.    The main advantage of subsidized student loans compared to both unsubsidized student loans is that the government pays all interest on subsidized student loans until repayment is scheduled to start under the student loan contract.

6.    President Trump is proposing to eliminate subsidized student loans for both undergraduate students and graduate students.

7.    The Bankruptcy Reform act of 2004 had no impact on the ability of students to discharge student debt in bankruptcy.

8.    The 2004 bankruptcy law gave priority to student loans over credit card debt in Chapter 13 bankruptcy.

9.    The Trump Administration proposes to increase the payment percent for Income Based Replacement Loans while decreasing the number of years it takes to obtain loan forgiveness.

10. An increase in interest rates caused either by changes in Federal Reserve policy or increased inflation would have little impact on student loan interest rates.

Answers to Quiz:

1.    False.  Actual number is 9.7 percent per year.
2.    True. From around 0.7 million to 2.8 million people.
3.    False.   Program was started when George W. Bush was president.
4.    True. It is in the budget but not yet enacted by Congress.
5.    True.  The interest savings to low-income borrowers eligible for subsidized loans is non-trivial.
6.    False.   Subsidized loans have already been eliminated on new graduate loans.   Trump wants to eliminate the program going forward for undergraduates.
7.    False.   It has always been hard to discharge government guaranteed loans.   The 2004 law made it more difficult to discharge private student loans.
8.    False.   The law made it more difficult to file under Chapter 7.  Most courts do not give priority to student debt over other consumer loans.   As a result, many people leave bankruptcy without reducing their student loan balance.
9.    True.   Trump mentioned this proposal in his 2016 campaign.   My concern is that under this proposal fewer people could afford the IBR payment and might choose a 20-year loan. 
10.False.  Government guaranteed interest rates are linked to the interest rate on the 10-year government bond in May.   This rate is impacted quite a bit by Fed policy and by inflation.   An increase in rates would substantially impair the financial outlook for future students.

Authors Note:  My book on student debt provides a lot of detail on the increased use of student debt and the current policy debates.   The most significant contribution is 12 innovative policy proposals, which seek to fix problems associated with the increase in student debt in an economical fashion.

One of my most ambitious proposals involves the elimination of debt for first-year students.   This proposal reduces debt incurred by students who do not have a proven academic track record or credit history.   The proposal reduces payment problems for people who don’t complete school and who are likely to have problems repaying their loan. 

I also argue for changes in the way student loan interest rates are set and changes in loan forgiveness programs.

A complete list of policy proposals is in my book. 

Amazon link to Innovative Solutions:

Kindle link to Innovative Solutions:

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