In response to this article on CNBC today:
Let’s review a few of the important points of our main character, Scott:
1.) Scott graduated with $35,000 in total debt. OK! NOT BAD.
2.) Scott made payments for 10 years, but the balance went up to $55k. NOT GREAT, BOB.
3.) Scott couldn’t make payments for a while, then “rehabilitated” his loan. MAKES SENSE.
4.) Scott now pays $6,300 a year, the balance is going UP every month, owes $130k, and declared bankruptcy which will not help his loan situation at all. WTF!
This story highlights the massive scam of income based repayment. We’ve looked at this problem before:
In that last linked article I said:
These plans often have payments lower than the interest accruing, so the balance on your student loans can actually GO UP over time. This essentially makes you dependent on loan forgiveness as your only way out of debt.
Even if Scott gets his loans forgiven, he will have paid many multiples of his original borrowed amount ($6k a year x 10 or 20 years, plus the payments he made for 10 years, plus the income tax hit). And again, there isn’t any way out. If you default, the government will withhold basic social safety nets designed for the poor.
This is the payday lending industry re-imagined.
This is indentured servitude.
Please be careful out there.