USA: The Student Loan Debt Disaster! Update: Income Based Repayment Plan Seems to be a Superb Solution

Last significant update on 17th February 2014
Minor title update on 20th June 2014

Update: From http://en.wikipedia.org/wiki/Student_loans_in_the_United_States#Income-Based_Repayment_Plan :
"If a student's loan debt is high but their income is modest, they may qualify for the Income-Based Repayment Plan (IBR). Most major types of federal student loans—except for PLUS loans for parents—are eligible for IBR.[25] Income-based plans provide for payment of 15% of disposable income for up to 25 years, then the loan is forgiven."

The videos given below did not talk about Income Based Repayment Plan - maybe that has been introduced later. IBR does seem to provide significant safeguards to the debt crushing somebody's life. So it does not seem so bad now, to me.

Now there seems to be a new law making the burden even lighter (for students borrowing from 2014) - limiting payments to 10% of (disposable) income (so a reduction from 15% to 10%) and debt being forgiven after 20 years (10 years if person is in public service) if they are making the monthly payments properly. Source: http://www.whitehouse.gov/issues/education/higher-education/ensuring-that-student-loans-are-affordable. I think this makes it even better - so now it seems to be quite OK, unless I am missing something. I mean, even if one does not get a good paying job but gets some job - one pays only 10% of disposable income. That seems really decent.

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The student loan debt problem is horrendous! Here are two youtube videos having people tell their own story about student loan debt in the USA:

Dr. Noelle, -$213,000 student loan debt, http://www.youtube.com/watch?v=AiCg92uKN5g, 13 min. 26 secs, published in May 2013. She is a PhD in Psychology and is now an Assistant Professor, who is saddled with debt and is staring at a very tough life! She is very articulate and tells her story very well.

I Owe CitiBank $105,000, http://www.youtube.com/watch?v=Eip-xRhokMM, 10 min. 31 secs, published in Apr. 2011. This is a very sorry tale of an American social work student, who seems to be of Chinese ethnic background, and his US based family.

Today I visited a local bank (in Puttaparthi, India) for some work. As the concerned officer was not at his seat I was looking around at the notices and posters in the branch. There was a big education loan poster and if I recall correctly the maximum amount mentioned was Rs. 30 lakhs! [30 lakhs is 3 million; at the current exchange rate of around Rs. 62 to a US Dollar, Rs. 3 million comes to slightly over 48,000 US $.]  I don't know how much of India is getting into this same problem that is plaguing America. But maybe most university educated people, as of now, get jobs in India and so are able to repay the loan.

I think there must be some strong laws, I repeat strong laws, that ensure that youngsters are made fully aware of the huge dangers of student loans, before they take on a loan. Financial institutions that "sell" loans to students without explaining the dangers involved should be penalized by having the entire loan money written off. You may think I am being a little extreme - but see these videos and see what a horrible situation these chaps have landed into. They would have been far, far better off not having gone to university at all and taken some job after high school! These poor chaps will lead the best part of their lives with debt hanging over their heads - my God! What a pathetic state of affairs!

I thank God that I dropped out of my Physics masters in 1984 in Bombay/Mumbai due to financial problems and looked for a job, instead of (seriously) looking at some financial institution that would loan me money for my Physics Masters (and any further education). Otherwise I would have suffered a similar fate as the poor chaps above, at least for a few years.