Student loans from the federal government cannot be discharged in bankruptcy and have severe consequences upon default. For example, upon default the federal government can garnish your wages and your credit will plummet as your loan account is assigned to a collection agency. With these consequences in mind, the Obama Administration has just recently finished its rules for the Pay As You Earn (PAYE) program.
“Today the U.S. Department of Education issued final regulations that will help many more federal student loan borrowers lower their monthly payments and avoid default,” stated The Institute for College Access & Success (TICAS) on November 1. “Final rules for the new Pay-As-You-Earn repayment plan will provide additional much-needed repayment relief to recent graduates, who are entering the job market with record student debt and facing near record unemployment rates,” states the press release (pdf).
Unemployment and underemployment for recent graduates was over 50% as of this April. “An analysis of government data conducted for The Associated Press lays bare the highly uneven prospects for holders of bachelor’s degrees,” reported the Associated Press on April 23. “About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years.”
Lauren Asher, president of TICAS, notes in the press release that graduates from the Class of 2012 will start facing their first loan payments this month. “The new Pay-As-You-Earn plan will provide many recent and soon-to-be college graduates with monthly payments tied to their income that are lower than currently available in IBR [Income-Based Repayment] or ICR [Income-Contingent Repayment], as well as loan forgiveness after 20 rather than 25 years of payments,” it states. “Under the final rules, to be eligible for Pay-As- You-Earn, borrowers must have taken out their first federal student loan after September 30, 2007 and at least one after September 30, 2011” (emphasis in original).
“The Net budget impact of the regulations is $2.1 billion over the 2012 to 2021 loan cohorts,” according to the Federal Register(pdf). It also provides for “Loan forgiveness after 20 years of qualifying payments compared to 25 years under current regulations,” increasing moral hazard for student loans.
Today’s unemployment report indicates that the economy added 171,000 jobs in October. “The number of people employed is virtually the same as when he [Obama] took office in January 2009,” reported Neil Irwin for the Washington Post. Yet a considerable number of graduates have entered the labor force since January 2009, four spring commencements ago. These regulations seem targeted toward those students who have graduated or entered school in that time period, an ironic coincidence days before the election.
The New York Times points out that unemployment in the U.S. could become structural, a perpetual part of the U.S. economy. “Economists warned that long-term unemployment could be transformed in the next few years into structural unemployment, meaning that the problem is not just too few jobs and too many job seekers, but a large group of workers who no longer match employers’ needs or are no longer considered employable,” write Annie Lowrey and Catherine Rampell on November 1.
Will recent college graduates–many of whom have never held a job in their chosen career path–be considered among the list of unemployable, or just those who have been unemployed long term?