When you believe in the cult of government it makes sense to reward people for choosing government careers.
This April, while hashing out the bill that reconciled differences between the House and Senate versions of health reform, lawmakers tossed in another overhaul as well. They completely remade the student loan industry.
As a result, college students will pay more for their school loans … unless they go to work for the government.
Is it fair to me to charge a higher interest rate on my student loans because I’m privately employed? Hell no. Does Congress care what I think? Hell no.
Here’s how it works. The College Cost Reduction and Access Act of 2007 established a loan forgiveness program for all full-time public-service employees. It provides that, after 10 years of public service, the remaining balance on all student loans issued under the Direct Loan Program (the only program in town, post-Obamacare), is forgiven.
To appreciate what a sweet deal this can be, let’s assume that the wife in our example above works for the government – federal, state or local, it doesn’t matter. The couple still qualifies for income-based repayment, paying only $975 a month. But because she works in the public sector, they are only responsible for making payments for the first 10 years – approximately $117,000 in principal and interest.
Meanwhile, her identical twin sister, in the exact same financial situation but working in the private sector, is responsible for making all 13 years-worth of payments, totaling $151,000.
In this case, the loan forgiveness program boosts the after-tax value of the public job by $34,000. With a huge bonus like that on the horizon, few workers could be tempted to leave their jobs after eight years of service.
In this way the loan forgiveness program turns student loans into golden handcuffs for government workers.
It’s highly unlikely that private employers will be able to pony up a compensation package more attractive than what the public service wife has even without this incredible student loan premium. Recent studies show that government compensation levels are 12- to 40 percent than those of the private sector.
In the end, the new student loan program will hit the economy hard. Young people who chose to go into the public sector will find themselves “job locked,” with few opportunities to leave the public sector without suffering a large financial loss.
This will increase labor market rigidity and drive talent away from the private sector, resulting in a slower economic growth. Meanwhile, taxpayers will continue to be hit with ever increasing tabs for government payrolls, employee benefits and student loans.
Read more: http://www.sacbee.com/2010/10/11/3095396/when-student-loans-become-golden.html#ixzz12ZaSGzqK
My personal situation is already perilous. My private sector employer (construction) is shutting down for a week-long furlough in December. The furlough is without pay. My employer is slipping financially. We’ve shrunk at least 40% in the last few years. While I work on my doctorate degree I must think very carefully – where will I go when I am finished? If my employer has not grown drastically by the time my student loans come due and given me commensurate compensation increases I will be forced to move on so that I can pay back my school debts.
The federal government holds all the cards and may be able to force me into the modern day equivalent of indentured servitude. The overarching message here is clear: government is good. Working for the government should entitle individuals to financial payback. The problem as I see it is that private employers are now at a disadvantage – an unfair one. If private employers cannot compete with government to attract new college graduates then government just continues to grow while private employers shrink. Doesn’t that further reduce the tax base? Where is the tipping point? I think we will find out soon.
I am a curmudgeon when it comes to standing up for government growth and government power. I would love to hear from educated readers who feel differently. Why should students get a loan repayment discount in exchange for a government service career?