Continuando con ateriores postings —uno y dos— sobre créditos y deudas estudiantiles en los EEUU a continuación una interesante reflexión aparecida en dias pasados en The Chronicle of Higher Education.
The Bank the Occupiers Should Be Protesting
By Diane Auer Jones, The Chronicle of Higher Education, November 1, 2011
The president announced his intent to speed up (to 2012 from 2014) the implementation of the new Income Based Repayment plan that reduces the percentage of discretionary income that can be devoted to loan payments from 15 to 10 percent and that reduces the total term of the liability from 25 to 20 years (for this year’s graduates and some graduate students, not all borrowers).
I am fully supportive of a plan that seeks to reduce student-loan payments to a reasonable level, especially since the prolonged economic downturn has hit recent college graduates particularly hard (some estimates show recent graduates to be at 43-percent unemployment and at an even higher rate if one considers underemployment – you know, those kids with $200,000 degrees who are working as part-time clerks at Barnes and Noble).
However, we need to understand that in its current design, IBR, like Extended Repayment (another program that allows borrowers with more than $30,000 in debt to extend their repayment term to 25 years) will cost borrowers a great deal.  Extended terms and capitalized interest add up to lots of borrower liability.  The president has mentioned consolidation as a way to reduce the cost of “high interest loans,” but in reality only FFEL loans can be consolidated into the government’s Direct Loan (DL) program, and FFEL loans are, at most, at rates that are only 0.6-percent higher (and in many cases considerably lower) than DL loans.
Congress legislates interest caps on both FFEL and DL loans, and while they set the interest cap at the same level for Stafford loans, they set the interest rate on FFEL PLUS loans (8.5 percent) at a rate that is 0.6-percent higher than the rate they set for DL PLUS loans (7.9 percent).  I would argue that a 0.6-percent gap in rates—which was the result of legislation—does not constitute highway robbery or predatory lending.  On the other hand, a government agency that charges students 7.9 percent in this economic climate could be considered an example of both.
So it isn’t the act of consolidating “high interest private loans” into the DL program that will reduce a borrower’s monthly payment in any meaningful way (and if students consolidate Stafford and PLUS loans together, they could see the rates on their former Stafford loans go up considerably).
In order to significantly reduce the monthly payment, the borrower must either enter into extended repayment (those who owe more than $30,000 can request a repayment term of up to 25 years) or  Income Based Repayment (IBR).  Both programs give the borrower the advantage of reduced monthly payments, especially in the early years of one’s career when earnings are at their lowest.  However, without a significant reduction in interest rates for borrowers in these programs (which would require new legislation), the cost of college could more than double beyond the so-called sticker price, and students may not even realize it.
None of the press releases coming from the White House explain the full impact of IBR and even the Department of Education’s Web site fails to include a calculator that shows students just how much they will pay over 20  years, should they elect to take advantage of IBR (although most borrowers will not qualify for the program for a full 20 years, so it is hard to predict in advance how much IBR will “cost” any given student).
To get a sense of what the end result of extended repayment periods mean to borrowers, one needs to consult to the Standard, Extended and Graduated Repayment calculator.  For example, a student who borrowed $40,000 at 6.8-percent interest will pay $64,548 in total if he repays the loan over the 10-year standard term.  However, if he pays over a 25-year extended period, he will pay $83,289.00 in total, and if he elects to go with a graduated payment plan over 25 years, then the total repayment amount will be $90,216.18.  If the borrower goes into deferment or forbearance at any time during the repayment period, in which case the 25 (or 20) year payment clock stops ticking, but interest accumulation does not, he or she will pay even more.
Of course the benefits of lower monthly payments are obvious, and I salute Congress for creating and the president for supporting programs that help students manage their debt. But extending payments without reducing interest rates by more than 0.6 percent, at most, digs students into a deeper hole than they may realize. The irony of the president’s plan is that while he is encouraging all students to take advantage of IBR, and increasing the likelihood that fewer students in IBR will be making payments toward principal, his Secretary of Education is taking action against some institutions whose graduates do just that. One would think that institutions should not be penalized if their graduates take advantage of repayment programs that Congress created and the president is marketing.
The truth is that for some students who enter into IBR or extended repayment, they will pay as much to the government as they did to their alma mater, thereby doubling the cost of an education.
Maybe the bank that the Occupiers should be protesting is the one being run by the Secretary of Education.