A Student Loan Nightmare: The Teacher in the Wrong Payment Plan
nytimes.com
nytimes.com
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.
I don’t know how people manage to spend $50k getting a degree in social work. Something is wrong with the system that that is allowed to happen.
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.
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... )
This doesn’t let them do that for several professions.
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.
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.
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.
Administration is growing because compliance requirements are growing.
Whether they are or not, many firmly believe they are underpaid.
It would be interesting to know where you got that. This is an area where people feel free to spread disinformation so I'd be careful.
> In Arizona, a state not known for education spending, spends close to $15k per teacher on pension contributions. Add in medical and other benefits, 3 months vacation, tenure, payroll taxes and the typical teacher is near there.
https://nces.ed.gov/programs/digest/d16/tables/dt16_211.60.a...
The interesting thing about Arizona is that salaries - which aren't great - are trending downward.
What has changed? Why is teaching in America such a terrible job?
Three months off a year, government level medical benefits, and lucrative pensions after only 25 years (sometimes only 20). Not to mention tenure.
Schools are paying enough to not have any lack of candidates for open positions. Their real problem is to equate “teaching certificates’ and credentials with teaching ability.
Great!
> Three months off a year.
This is like saying that ski instructors get nine months off a year. It's not paid leave.
What if the program had provided an on-time payment bonus (say $500 per payment) on each payment made by people in a qualifying job? The financing of the program would have been continual, so no 10-year budget time bomb. The loan forgiveness would be fixed rather than 100%, encouraging borrowers to borrow responsibly. And it would still accomplish the goal of encouraging people to work in those kinds of jobs.
And, more importantly to the man in the article, the loan balance would be front and center, so he would have realized there was a problem immediately when he didn't see it going down fast enough.
There are 1000 different ways that you could improve this situation. Getting rid of the servicer middleman, or making said middleman accountable for mistakes made would be a good start.
The current scenario is a breeding ground for problems — nobody is accountable.
Sounds less than ideal to me.
NYC was paying $10k bonuses iirc.
All-or-nothing only makes sense because you can avoid accounting for the costs today, which is convenient for politicians. It's not convenient for teachers.
No, it isn't, because it doesn't.
Not just that; it's a way to encourage people with a specific set of traits to take certain jobs.
If I were more cynical, I'd suggest that a group of bankers was looking for ways to create a generation of debt slaves, and someone came up with "how about we make sure that their high school teachers are all people who can't manage to effectively manage their money". I'm not quite that cynical, and I don't think this was deliberate -- but the fact remains that creating a strong financial incentive to become a teacher but only if you can't pay your debts is not exactly consistent with the idea that kids should gain some financial literacy while in school.
It's been a decade or two since I've been in high-school but we didn't have 'home economics' or anything approaching education in financial literacy.
American learn financial literacy from their parents and whatever they absorb through osmosis from their environments, which has led to the situation you describe.
You'd need to be more than cynical to believe that.
>"how about we make sure that their high school teachers are all people who can't manage to effectively manage their money"
How does this follow? If I'm aware that becoming a high school teacher ensures that I can borrow money to go to college that will be repaid by the government after 10 years of working, and I take advantage of that, how exactly does that show that I can't effectively manage money?
>creating a strong financial incentive to become a teacher but only if you can't pay your debts
That doesn't follow either. It has nothing to do with whether you can pay your debts or not. Most of the people who qualify for this program would have paid their loans off had they not been aware this program existed.
Instead they chose to make minimum payments and use the money saved for other purposes. Nothing about that demonstrates financial illiteracy. In fact taking advantage of a rather byzantine aid program demonstrates financial literacy.
Because the program didn't exist when you made the choice to accumulate unsustainable debts. Using the existence of the program to justify taking on that debt is like a lottery winner claiming that buying lottery tickets was a good financial decision; true, it paid off in the end, but only by luck.
Where are you getting this from? The program has existed for 10 years, and many similar programs where state and local governments would pay off loans if you came to work for them existed for years before that.
>unsustainable debts
Even in the case of someone who took out loans before the program existed, how does it follow that the debts are unsustainable?
What if I have $40k in student loans that I'm perfectly able to repay over 10 years, but I chose to work as a teacher knowing that one of the benefits of that career choice is that I can make minimum payments, and take advantage of this program.
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).
Another thing to point out is that many colleges offer grants, scholarships, and work study such that the sticker price often isn't what gets paid.
This, friend, is precisely how it ought to be. The University is a guild and administers examinations. If you pass you are admitted to the guild. Just how you pass, that's up to you, but initiative is required. We won't wipe your ass or run you through the book, one chapter per lecture. That's part of the informal training.
No, in my experience it's that the undergraduate degree serves to get admission to a professional degree (MD, nursing, whateverelse the medical school here in town offers) that has next to nothing to do with what the first degree was about. Consequently, GPA is more important than knowledge, and with curved exams you see an unnatural hypercompetitiveness.
it’s performance that dictates whether you get to stay and whether you get promoted
It's more adeptness at office politics, but I'm a cynic and the institution is weak.
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...
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.
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.
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.
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.
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.
Fortunately, we had the means and a low enough balance to put it on a high limit balance transfer and pay it off.
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.
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.
Driving adoption of the platform to the most users and ultimately maximizing aggregate long-term profit and value simultaneously?
> Because of his 8.25 percent interest rate, which he could not refinance due to loan rules, even those higher payments weren’t putting a dent in his principal. So the $70,000 or so that he did pay over the period amounted to nothing, and he’ll most likely pay at least that much going forward.
https://studentaid.ed.gov/sa/repay-loans/understand/plans/gr...
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.
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...
Guy chose a payment plan not eligible for loan forgiveness.