Federal Government Once Again Acts to Destroy Labor Market

If you do not believe me, then I suppose you believe the New York Times.

Take a single person who earns $50,000 per year. Each 1000 dollars she adds (subtracts) from her income adds (subtracts) from her monthly student loan repayment by $89. Moreover, if her income goes above $60,000 (below $40,000), the 8.9% cap becomes a 10.9% (2.8%) cap.

This is a further erosion of work incentives, and will take yet another bite out of national employment.

Some of this just affects the maturity dates of the loans, but loan maturity dates are also capped. I'll report back with a marginal tax rate calculation, but the basic analysis here is as with my analysis of home mortgage forgiveness (see here, here, here, here, here, here, here, and here).

This terrible program starts July 1, 2009.

Comments

[CautiousInv...:]

These are turly perverse incentives that will work against normal, healthy instincts to do better in life.

I should also think banks will reexamine their interest in making student loans.

Jun 30 06:02 AM

[TCK:]

Just as in the housing crisis, the government accelerates the inflation in education costs by providing loans.

Economics 101; By increasing the money available for a product or service, the cost will eventually rise !

Jun 30 08:17 AM

[fireball:]

looks like new teeth for the socialist promises of change and equality of poverty for all.

Jun 30 08:57 AM

[jpiretti:]

Are you folks actually suggesting that an individual will forgo a 10k increase in pay as not to pay an additional $890 in debt? Is it not an inherent and organic effort to make more so you can aggressively pay down your debts?....and this is socialism in what perverse way? All I remember when I graduated in 1981 is that I took a second part time job to pay down my debts as quickly as possible...and this makes me a socialist?....the comments on this site have become comical.

Jun 30 09:18 AM

[LaVern Isely:]

Our federal government should believe in unions, as well as the minimum wage because I don't think Communism is the answer. What is scary though, is that the U.S. Chamber of Commerce doesn't believe in unions or the minimum wage. A hundred years ago when TEDDY ROOSEVELT was president, Henry Ford, who made the Model A and Model T, said you had to pay the laboring man that built this car, at least $5.00 an hour, so that they could buy his car. Educated lawyers in Congress might not understand this but it sounds like COMMON SENSE TO ME.
Yours truly, Disgusted Middleclass Taxpayer, Public Citizen and AARP Member, LaVern Isely

Jun 30 02:27 PM

[derryl:]

In the United States of Goldman Sachs the only purpose of having workers is as a large block of debt interest payers to keep the bankers rich and a large pool of cheap labor to produce luxuries for those who can afford them, i.e. the rich bankers. Oligarchs want to keep the common people down, not raise them up. What self respecting oligarch would want a bunch of uppity commoners?

Jun 30 07:36 PM