Student loans: “Pay As You Earn” accelerated?
The economy might still be on shaky knees at best, but it’s not the credit cards that are hurting young adults’ pocketbooks the most lately; it’s student loans. This piece of news is a timely Dinner Topic because along with the data that student loans have overtaken credit cards as the number one source of debt1, President Obama and Congress are trying to accelerate a proposal known as “Pay As You Earn” to begin in 2012 that would add additional structure for those trying to pay off student loans in the long run.
Check out the links below for more details, but the basic idea behind “Pay As You Earn” is that student loan payments would only consist of 10% of discretionary income. This would come in sequence with additional steps that would allow former students to consolidate loans at a lower rate. In an economy where jobs are scarce and the ratio of debt to income is climbing for many young people, the proposal gives them an opportunity to defer some of the debt for a longer period, at potentially lower rates, and most importantly, in a way that is tied to income so the debt doesn’t swallow up one’s entire paycheck. Of course, adding proposals which decrease the incentive to earn or pay off debt quicker could backfire, but that’s why nothing in politics is ever a slam dunk.
The current news surrounding the “Pay As You Earn” proposal is regarding the attempt to move up the original start date from 2014 to 2012. Will it work? Does it make sense on a micro and macro level? That’s what the dinner table is for. Argue on your own time or post a comment below!
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Read on:
USAToday.com – Obama sets new rules for student loan payments
DailyFinance.com – White House Announces Plan to Ease Student Loans
(image taken from http://www.costello.house.gov/issues_MythsFacts.shtml)
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