Well, let’s start with another measure about how bad
the Student Loan situation is.
Credit Sesame, a credit and loan management company, took a look at the places where the median annual income for those with a bachelor’s degree or higher is less than the average student loan balance. In short, places where graduates owe more than they’re earning.
As the Business Insider story by Emmie Martin states, you are supposed to get a job that pays enough money for you to, well, pay off the student loans you borrowed to get the degree to get the job.
Number One on the list?
Average student loan balance per person: $60,184
Median salary for graduates with at least a bachelor’s degree: $39,868
Debt-to-income ratio: 151%
Read the story for the other cities.
Student Loans and Uncle Sam
The government dominates the student loan business, and, keeps making noise about helping the millions of students it has sucked into the black hole of student loan debt.
Scott Burns does a great job explaining how much it REALLY costs to repay student loan debt.
The hard part comes when the graduate has to pay back student loans. Why? Because it is done with after-tax income. While interest payments up to $2,500 a year may be deductible, principal repayment is not. So if you are in the 66 percent of people who graduate from a public college with debt and have average debt, you’ll owe $25,550 of after-tax income. With a marginal tax rate of 25 percent, that means you’ll pay back $34,067, a nice $8,517 premium for Uncle Sam.
The actual figure is higher, however. Everyone has to pay the employment tax on the same income. Add the 7.65 percent (employee portion) tax, and the marginal tax rate is 32.65 percent. The pretax income that you need to earn jumps to $37,936. So Uncle Sam gets a nice $12,386 premium on your education. Basically, our government takes in a tax premium of nearly 50 percent of the cost of education as part of providing the loans — and this doesn’t consider a dime of the interest expense.
What Is Uncle Sam Doing About the Student Loan Crisis?
Several bills aimed at relieving the individual and societal burden of student loan debt have been introduced in recent months.
I mentioned this in an earlier post; it being an election year, lots of our politicians have introduced bills, so they could say they are doing something.
Allesandra Lanza of U. S, News highlights some of them. Which are, no surprise, woefully inadequate to deal with the problem.
Making colleges give financial counseling every year is nice, but, c’mon. Same with simplifying the FAFSA form.
Now, I did not even realize this one:
• Stop Taxing Death and Disability Act: While this bill has not passed either full chamber of Congress, both the House and Senate recently passed it for consideration. This bill would stop the practice of taxing forgiven student loan amounts when the borrower dies or becomes disabled.
Currently, federal student loans are eligible for discharge in cases of death or disability, but taxes must be paid on the amount forgiven – which could mean a significant tax bill for the borrower or the borrower’s family in the year the loan is forgiven.
The last bills dealt with in the article are about helping employers pay off student loan debt of their employees.
They amount to a bunch of aspirins for a terminal cancer diagnosis.