Flashback: Federal Employees' Student Loans Getting Paid Off by Taxpayers; Government Projected to Make $50 Billion in Student Loan Profit in 2013
The PSLF Program is intended to encourage individuals to enter and continue to work full-time in public service jobs. Under this program, borrowers may qualify for forgiveness of the remaining balance of their Direct Loans after they have made 120 qualifying payments on those loans while employed full time by certain public service employers. You must make 120 on-time, full, scheduled, monthly payments on your Direct Loans. Only payments made after October 1, 2007 qualify. You must make those payments under a qualifying repayment plan. When you make each of those payments, you must be working full-time at a qualifying public service organization. Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes. A private not-for-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. The organization must not be a labor union or a partisan political organization.
If you aren't fortunate enough to be a "public servant", you may qualify for the income-driven repayment plan. For details, click here.
To make sure your extra payments are allocated properly, send written instructions to your servicer; otherwise, the servicer may choose how to allocate the extra money. The Consumer Financial Protection Bureau created a sample instruction letter, directing the servicer to apply extra payments to the loan with the highest interest rate first, which is generally the best option for most borrowers.
Get Uncle Sam to Pay Your Student Loans
Whether or not you work for the government, Uncle Sam can help pay
for those pesky student loans.
GovCentral researched three federal programs that will reduce your student loan payments or even make the payments for you. We’ve also found which careers can give you the best chance to qualify for them. Read on to find out how to get Uncle Sam to pick up the tab for your education.
Even if you don’t work for the government, Uncle Sam can pay for your loans or if you qualify, make the payments more affordable.
The three programs we’re go into a little more detail are:
The Federal Student Loans Repayment Program is used by federal agencies to recruit and retain high-value employees. Last year, 33 federal agencies dolled out over $42 million to help repay student loans. The average benefit was $6,377, but you can qualify for up to $10,000 per year and a lifetime max of $60,000.
The Department of Justice provided assistance to over 37 percent of their employees, mainly those working at the Federal Bureau of Investigations. The agency with the highest average benefit was the Securities and Exchange Commission at $9,187 per recipient.
GovCentral researched three federal programs that will reduce your student loan payments or even make the payments for you. We’ve also found which careers can give you the best chance to qualify for them. Read on to find out how to get Uncle Sam to pick up the tab for your education.
Even if you don’t work for the government, Uncle Sam can pay for your loans or if you qualify, make the payments more affordable.
The three programs we’re go into a little more detail are:
- Federal Student Loan Repayment Program
- Income-Based Repayment
- Public Service Loan Forgiveness
The Federal Student Loans Repayment Program is used by federal agencies to recruit and retain high-value employees. Last year, 33 federal agencies dolled out over $42 million to help repay student loans. The average benefit was $6,377, but you can qualify for up to $10,000 per year and a lifetime max of $60,000.
The Department of Justice provided assistance to over 37 percent of their employees, mainly those working at the Federal Bureau of Investigations. The agency with the highest average benefit was the Securities and Exchange Commission at $9,187 per recipient.
Pay & Leave Student Loan Repayment
Overview
Description
The Federal student loan repayment program permits agencies to repay Federally insured student loans as a recruitment or retention incentive for candidates or current employees of the agency. The program implements 5 U.S.C. 5379, which authorizes agencies to set up their own student loan repayment programs to attract or retain highly qualified employees.Employee Coverage
Any employee (as defined in 5 U.S.C. 2105) is eligible, except those occupying a position excepted from the competitive civil service because of their confidential, policy-determining, policy-making, or policy-advocating nature (e.g., Schedule C appointees).Loans Eligible for Payment
Loans eligible for payment are those made, insured, or guaranteed under parts B, D, or E of title IV of the Higher Education Act of 1965 or a health education assistance loan made or insured under part A of title VII or part E of title VIII of the Public Health Service Act. (See Q&A 17 for examples of the types of student loans that are eligible for repayment.)Limitations
Although the student loan is not forgiven, agencies may make payments to the loan holder of up to a maximum of $10,000 for an employee in a calendar year and a total of not more than $60,000 for any one employee.Discretionary Authority
As with any incentive, this authority is used at the discretion of the agency. Each agency must develop a plan to describe how the program will be implemented.Service Agreement
An employee receiving this benefit must sign a service agreement to remain in the service of the paying agency for a period of at least 3 years. An employee must reimburse the paying agency for all benefits received if he or she is separated voluntarily or separated involuntarily for misconduct, unacceptable performance, or a negative suitability determination under 5 CFR part 731. In addition, an employee must maintain an acceptable level of performance in order to continue to receive repayment benefits.Periods in a Non-Pay Status
Periods of leave without pay, or other periods during which the employee is not in a pay status, do not count toward completion of the required service period. The service completion date must be extended by the total amount of time spent in non-pay status. However, as provided by 5 CFR 353.107, absence because of uniformed service or compensable injury is considered creditable toward the required service period upon reemployment.Annual Reporting
Agencies are required to report annually to the U.S. Office of Personnel Management (OPM) on their use of the student loan repayment authority. Before March 31 of each year, agencies must submit their reports for the previous calendar year. The reports must contain-- The number of employees who received student loan repayment this benefits;
- The job classifications of the employees who received student loan repayment benefits; and
- The cost to the Federal Government of providing student loan repayment benefits.
- CY 12 Report (PDF file) [1.68 MB]*
- CY 11 Report (PDF file) [1.93 MB]*
- CY 10 Report (PDF file) [2.63 MB]*
- CY 09 Report (PDF file) [1.82 MB]*
- CY 08 Report (PDF file) [500 KB]*
- FY 07 Report (PDF file) [1.46 MB]
- FY 06 Report (PDF file) [189 KB]
- FY 05 Report (PDF file) [575 KB]
- FY 04 Report (PDF file) [303 KB]
- FY 03 Report (PDF file) [339 KB]
- FY 02 Report (PDF file) [208 KB]
References
U.S. government projects to make record-high profits on student loans.
June 16, 2013The U.S. government projects to make more money off student loans this fiscal year than ExxonMobil, Apple, J.P. Morgan Chase or Fannie Mae made on their respective businesses last year, a new analysis shows.
According to the Congressional Budget Office's latest projections, the federal government projects a record $50-billion profit on student loans this year. ExxonMobil made $44.9 billion in 2012, according to published reports, making it the most profitable company in the country. And if Congress doesn't stop rates on some loans from doubling on July 1, that profit will rise more, up to an additional $21 billion, a recent report found. However, there are those who claim the projections don't accurately reflect risk taken by the government and the profits are much smaller.
"I can understand private companies making profits off student loans — part of mine are private — but it doesn't make sense for the government to be making huge profits off the backs of young students just trying to make themselves employable in a terrible economy," said Kristy Currier, 26, of Detroit.Currier said she pays between 3.9% and 10% interest on her various student loans, which total about $75,000.
The record-high profits on student loans come during a time of historically low interest rates on home mortgages and car loans. While a home buyer can get a 30-year mortgage at about 4.5% interest, the federal government is charging as much as 6.8% interest on unsubsidized student loans and is less than a month away from automatically doubling the interest rate on the loans headed to poor students unless Congress takes action.
Jonathon Whaley's loan payments suck out about $750 a month from his bank account. The 25-year-old Grand Rapids resident is paying off both federal and private loans. His private loans charge him 4% interest. His federal loans charge him 7%.
"Because the government has almost ensured anyone who applies will get the loan they need, schools have been able to drive prices up with no concern as to where funding will come from," Whaley said. "With prices skyrocketing, students are taking on way more debt than they can handle but have no other option to compete in the modern economy."Whaley, a compliance manager/attorney at an investment firm in Grand Rapids, took out about $250,000 in loans to finance his education at the University of Dayton and Ave Maria School of Law.
"I was lucky to fight through a terrible job market and scrape by enough money to make my loans a burden and not a killer. However, I have dozens of friends who are not so lucky.When Nathan AuBuchon graduated from Walsh College last fall, he did so with $35,000 in federal student loans he used for schooling at Western Michigan University, Wayne State University and Walsh. The 31-year-old Commerce Township resident, who co-owns a realty company and works in production for Performance Springs, pays $172.66 a month in loans.
"The government needs to remove itself from the student loan industries or else it will continue to destroy my generation."
He doesn't have a problem with the government making money off his loans.
"I see it as the taxpayers who are making the money, and I have no problem with that. … The taxpayer should be compensated for their opportunity cost and the risk of loss of their money."Where do profits go?
The Congressional Budget Office's May look at the federal student loan account forecasts the federal government will make more than $173 billion in profits from student loans over the course of the next 10 years.
Those projections are higher than the Obama administration's projection — which forecast a $34.3-billion profit this year vs. the CBO's $50-billion projection. Using the administration's projections, the government is making an average of about 18 cents in net profit from every dollar it lends out.
The government books it profits by lending out money at rates higher than it borrows. The CBO projects the government rate will be 2.1% during 2013. Loan interest rates for borrowers run from 3.4% to 7.9%.
The profitability of the student loan program is under increased scrutiny as the debate over the cost of higher education and debt levels revs up in Washington under the watchful eyes of college students and their parents.
The interest rate on the federally subsidized Stafford loan is set to double on July 1. Congress is debating a number of bills designed to hold that rate down closer to the current 3.4%.
The Congressional Budget Office projects that keeping the loan rate at 3.4% on subsidized loans would cost the government $41 billion over the next decade, while getting rid of the subsidized program altogether would increase the profit by $49 billion.
Budget projections from the Obama administration show an expected profit of $26.3 billion in 2014, with a slight uptick in the profit rate to nearly 19 cents for every dollar lent out in 2014.
"I think the government should cover costs, but certainly not profit off (student loans)," said U.S. Rep. Tim Walberg, R-Mich., a member of the House's higher education subcommittee. "You're basically taking that money from citizens who could use it."Tracking exactly where the profit ends up is complex. Some was sent by law to help fund the Affordable Care Act, while some went to lower the federal budget deficit.
Predicting the exact profits is tricky and based on projections about interest rates. That's illustrated in the 2012 audit of the federal Office of Student Aid, the latest audited data available. Projections had been for the federal government to make $22.9 billion on student loans in 2012. However, that number was lowered by $12.2 billion. Interest rate changes; increases in death, disability and bankruptcy rates; and a slight decrease in loan volume all lowered the profit number.
Low-risk business for the federal government
Borrowers have a number of federal loans to choose from when they look at financing their education.
The most commonly talked about loan is the subsidized Stafford loans, which are available to students meeting financial-need guidelines. Students can borrow up to $5,500 from these loans a year, depending on what year in school they are in. The federal government pays the interest on these loans while you are in school.
As a result, these loans aren't profitable for the government. In fact, budget projections show the government expects to lose just over 3 cents on every dollar it lends out under these loans. The average subsidized Stafford loan in 2013 is projected to be $3,204, budget documents show.
The other common loans are the unsubsidized Stafford loans and the PLUS loans, which are made to parents of dependent students.
It's in these two areas that the government makes its money.
The unsubsidized Stafford loans are the most common loans the federal government gives out, budget documents show. The average loan is projected to be $5,394 this year. On those loans, the government expects to make just over 26 cents on every dollar it hands out.
On the parent loan, the projected average loan is $14,410 this school year. The federal government expects to make nearly 34 cents on every dollar it lends out this year under this program, budget documents show.
Experts say the loans are relatively low-risk in terms of the government eventually collecting the money.
"In some cases, such as for student loans, the federal government has tools to collect from delinquent borrowers that private lenders do not have, giving federal programs a real advantage over private-sector companies," the nonpartisan Congressional Budget Office wrote in a June 2012 report on the federal loan system.The loans aren't dischargeable in bankruptcy. The government can set up liens against income tax refunds. The government has also stepped up its collection of past debts, hiring private firms to go after scofflaws. That includes an increased effort by private attorneys working on contingency contracts from the federal government to haul people into federal court to get judgments against them, allowing wages to be garnished and assets to be seized.
The government projects handing out about $133.5 billion to nearly 23 million borrowers this school year.
Projecting how much money the government will make — or have to pay in a subsidy — on those loans is a tricky, complex formula, based on a variety of factors, experts said.
The federal Credit Reform Act of 1990 set the way the government has to account for its loans. It measures the cash outflow as the disbursement of the principal loan amount and the inflowing money as the payments of interest and principal, minus amounts not paid, plus any fees the government receives from the borrower.
But there are those who believe this is a bad way to measure and predict what loans cost the government. They like something called fair value accounting, which they believe does a better job of factoring in the cost of collecting delinquent or defaulted loans and looking at the risk taken by the government when it lends out money. They believe there is actually little to no profit. The CBO projects that by using fair value accounting, the government's profit this year would be $6 billion.
The federal Office of Student Aid ended 2012 with more than $948 billion in its student loan portfolio. It spent $18.94 per borrower on loan servicing, according to its 2012 annual report — the latest report available. It doled out a $28,350 bonus to its chief operating officer and gave the five members of its operating committee who received the highest review marks bonuses averaging $20,607 a person.
Changes may mean even higher profits
Terri Lowe is helping to pay her son's loan off while he looks for a job. She pays about half of his $120-a-month loan payment to federal government.
"He's working part-time and paying what he can," the 54-year-old Chesterfield Township resident said. "I don't want to see his credit ruined, so I'm happy to help out. I had no idea the government was making money of these loans. I thought they would be breaking even or even using tax money to cover the cost. If they're making money, they should lower the interest rates."Mark Kantrowitz, a leading financial expert and publisher of FinAid.org, says recent changes to student loans, including the federal government no longer paying the interest on subsidized Stafford loans during the first six months after graduation, will continue to impact the profits.
"In the future, we're likely to see more changes that make student loans more profitable," he said.That means there's likely to be more graduates mirroring Kristy Currier's experience. She graduated in December 2011. She found a job six months later but was laid off five months later. She was unemployed until this past January, when she found a job that doesn't pay enough to cover her roughly $600-a-month loan payments, plus living expenses.
"I feel like I will never get out of student loan debt and am not saving anything really. If I was not living with my fiance, I would have to be living with my mom, because I have so much to pay back."
Sallie Mae: Helping You Pay Less, So You Owe Them More
Your credit card company wants you to pay because you could [somewhat] easily wipe that debt away with bankruptcy. Sallie Mae doesn’t care how much you pay because you are forever indebted to them.March 12, 2013
Frank Smith, The BillFold - I think it’s underreported how incredibly nice the customer service agents at Sallie Mae can be about you not paying back your loan.
Like a lot of people, I took out loans for college, and after graduation, spent my early twenties not making enough money to pay down my debts.
Eventually I took a job at an internet-y, start-up-y, new media, digital-type company where I was nicely compensated, and I started making payments on my loans. I was laid off after 18 months.
When I called Sallie Mae to break the bad news, the customer service agent sighed and told me it was OK, pumpkin—I could put the loan into deferment.
I asked how long I could do that, and I don’t remember what she said, but she certainly didn’t seem to be sweating it, so I figured I wouldn’t either. Pay it back. Don’t pay it back. Pay a little on it. Defer it. Whatever.
I hung up the phone feeling like a fucking champion. I had faced a major financial fear, and it had been resolved thanks to a mutual agreement to not worry about it.
Two years passed, and the loan collected about $15,000 in interest. I got more full-time work and started paying my Sallie Mae bill again, but it looked kinda ugly, and I began to consider deferring it again. They’d let me do it so many times before. I once deferred paying back the loan for a year simply because it was the only way I could afford to deal with the amount of late-charges I’d racked up.
Go to the website, click a few buttons, watch the amount due that month fade to zero, and chuck those payment slips in the recycling bin.
Pondering that option, the other day I logged into Salliemae.com and asked to reset my password—just how I do on the 26th of every month to pay the bill that is due on the 25th.
Right now I can pay a bill. And yet I cannot pay a bill. Paying a bill makes me upset. I get upset because seeing money that I have earned go toward something that will never go away feels futile. I looked at my outstanding balance and was struck by cold terror.
For about three months I’d been ignoring the $20 late charges and just paying the $247 due every month, thinking that the growing past-due balance would either disappear or get so big that it disappeared or… Obama? That $247, by the way, was only going to interest; it wasn’t even touching the principal.
So I called Sallie Mae to figure out what I’d done and what I could do. I started the call by telling the INCREDIBLY CHEERFUL agent that I’d been through periods when I couldn’t pay, but now I was ready to pay aggressively for however long it took to pay this thing down (hopefully not forever).
The agent told me I had set up a plan where I paid about as little as I could, but because of that, what I was paying was only going to interest, which was continuing to accrue. I could change the plan and pay more and some amount of it would go to the principal. This sounded good to me. This is what I wanted. I want to pay more, not less. But the agent kept bringing it back to paying less—so many times that it began to seem illogical to increase the monthly payment plan. I don’t think he was doing so for any other reason than he must get five billion calls every day from people who are like, oh my god, I cannot pay this bill. That’s gotta take a toll on a person.
In fairness, that’s been me for most of my relationship with Sallie Mae. But if a guy is telling you that you can lower your bill, and he seems really cool about it—shouldn’t you do that? Isn’t having a lower bill the point of life?
If I really dig in, maybe I can get the student loan bill lower than the cable bill.
It has taken me wa-a-a-ay too long to realize the difference between a loan payment and a cable bill. If you pay too much for your cable package you can cut back and get the plan that doesn’t include HBO, or you can cancel the whole thing. Don’t pay, and they cut your cable off. There’s no giant number that Time Warner has attached to your social security number that you need to pay down every month.
Loans, on the other hand, are a big number attached to your social security number, and you have to pay them back or the number gets bigger until you give them enough money to make it smaller. Buy some scratch-off tickets. Pack up your shit and disappear.
I’d figured this out with credit cards. Unlike Sallie Mae, credit card people are not very nice when you call them and ask for a lower monthly payment. Unless you can start throwing money at your credit card company in lump sums, you’re basically trapped in a cycle where your minimum payment goes only to interest forever and the amount you owe increases every month. They won’t help you. And so early on in my career as debtor, I paid off my credit cards.
But my experience with Salle Mae has been different. You can pay more to bring the debt down, but you could also pay less and bring the debt up, and they’re cool beans either way. You can also fill out a form and not pay it at all for a while.
Of course, I appreciate how nice the Sallie Mae customer service people have been to me.
I imagine they field a lot of rough calls.
I’ve definitely called them in rough times.
It’s just that there’s an institutional crack, a systemic fuck-up when no one—not even the people at Sallie Mae—acts like they expect these loans to be repaid. They’re just trying to figure out how to help you pay something toward your debt so you don’t get thrown out of a moving boxcar.
I am a person who has a lot of anxiety, embarrassment, and fear tied up in the debt that I owe. I will also admit to being kinda sorta clueless. So carrying all that baggage means that every few years when I experience a moment of clarity or something horrible happens to my ability to draw an income, I call up the owner of my student loan—and I get hosed.
You can’t get rid of student loans, not through bankruptcy or ever. If I’m allowed to grow a loan for YEARS after my education is complete, then who is the one making a living from my education? It’s not me.
Anyway, I visited the cold and logical Salliemae.com after this latest call and figured out a way to not just make payments, but to start paying the thing off. My loan will probably be paid off in ten years. At that point I will have been out of school for 23 years, which is how old I was when I had to make my first payment to Sallie Mae.
Related:
Public Service Loan Forgiveness | Federal Student Aid
United States Department of Education
Public Service Loan Forgiveness Program - Federal Student ...
United States Department of Education
Federal Student Loan Repayment Program - Office of ...
Office of Personnel Management
Student loan forgiveness: What you don't know (but should)
USA Today
Student loan repayment and forgiveness - Go Government
FinAid | Loans | Loan Forgiveness
FinAid
Loan Forgiveness for Public Service Employees Federal ...
United States Department of Veterans Affairs
Student Loan Perk Doesn't Benefit Most Federal Employees ...
Government Executive
No comments:
Post a Comment