Trading Social Security for Student Debt
Rep. Tom Garrett is a Republican representing Virginia’s 5th Congressional District. He is a member of the Committees on Education and the Workforce, Homeland Security, and Foreign Affairs. He presents a problem:
We can’t afford to lose the energy, ideas, and vision of young people who give up their dreams of going to college because it is unaffordable. And we shouldn’t saddle young people who graduate with enormous debt, forcing them to postpone marriage, becoming parents, buying homes, starting a business, and many other activities that enhance their lives and strengthen our economy.
The student debt crisis is a huge threat to the long-term economic prosperity of our country. If we fail to take positive measures to address the looming economic challenges brought on by student loan debt, nothing less than the long-term prosperity of our country hangs in the balance.
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And offers a solution for some:
For every $550 in student loan forgiveness – or roughly the average cost for one credit hour at a public university – a Student Security participant would agree to raise his or her full-retirement age for Social Security benefits by one month. A student could get a maximum of $40,150 in debt relief. To get that, the person would delay the starting age for collecting Social Security benefits by 6 years and 1 month
Leaves me flabbergasted.
Any proposal to reduce, eliminate &/or privatize social spending is, for the conservatives’ ideology (small fed gov’t), better than increasing taxes on corporations, the wealthy, or decreasing defense spending.
So do the arithmetic:
$40k debt relief for education at the present, has real value roughly 3 times that in 45 years at the present allowable full retirement age (= age 22 + 45 = age 67) or $120k. This is based on 2.5% average annual inflation over the next 45 years. A present $25k/year SS income will be a SS benefit of $75k in nominal dollars in 45 years .
$75k x 6 years delay in SS benefits = $270 k + 6 more years inflation = $313k, so the net loss to the student in SS benefits = $313k – 120k = $193k over 6 years.
Basically that means the student has to save an additional $193k over their working life, net of inflation, just to make up the difference. In nominal dollars saved it’s much more.
But who get’s the benefit of those additional savings? Banks, financial institutions and capital borrowers, since it increases the total capital available to loan.
And if the student doesn’t save that amount over their working life toward their support during retirement, their retirement income drops dramatically so they lose standard of living in a big way.
Sounds just like every other conservative ideologically derived scheme to con people out of their tax payer funded social benefits.
That is no solution. It does nothing. Social security money and student loan money are from different and completely disconnected sources. Money cannot, by law, be transferred between the two.
flabbergasted by the creativity of the idea
or be the sheer evil of it.
as jerry critter points out, SS money does not come from the budget. it is in fact the savings of the person who will collect the benefits. there is an important insurance component to those savings: essentially if you don’t make enough in order to save enough in order to retire, you get an insurance boost from the savings of those who were able to save more than enough. those savers are not being robbed or forced to pay “welfare,” they are simply those who paid for their insurance but did not have the fire.
only the very rich and the very stupid think that if you don’t have the fire, the money you spent for fire insurance is “wasted” or even “ought to be refunded” or never collected in the first place.
it turns out that because people are expected to live longer they will need to save more in order to have enough to retire (including their social security insurance). but also, because wages are not expected to grow at historical rates, the percent of their wages that people will have to save in order to have enough to retire will go up.
not by much… about 2% of your paycheck, and because wages will be going up about one percent per year, you will ultimately have more actual money in your paycheck, even after the FICA deduction increase than you (average worker) have today.
these are not difficult concepts, but between the big liars, the profoundly stupid “press,” and the very easily bamboozled public, people can’t seem to understand it well enough to keep themselves from being robbed, and finding themselves old enough to hurt with no way to retire, but no doubt having had the satisifaction of wasting their youth generating ideas, vision, and profits for their bosses.
this year will likely be the crisis year. starting this year a raise in the FICA of about one dollar per week per year will entirely cover the expected higher cost of Social Security. if we wait another year or two, the cost will be a little higher. still not a “burden” but beginning to be harder to explain to people who aren’t good at thinking clearly about their futures, the costs and risks.
i have gone through this a number of times at Angry Bear. I can do i one more time, perhaps (getting old myself), but it is a little heartbreaking putting effort into explaining something to people who will do NOTHING to protect themselves, their futures, or their kid futures.
one new development this year is that i received a letter from the deputy chief actuary of Social Security confirming that my “one dollar per week per year” increase in the tax will indeed pay for Social Security’s expected costs for the forseeable future. This does not amount to a formal “scoring,” but apparently a formal scoring requires a request from a congressman or other politically connected person.
maybe someone here has some idea how to actually talk… sensibly… to a congressman.
in case it wasn’t clear:
those who save “more than enough” through social security still get their money back when they retire… in fact they get it back plus about 2% real interest. not as much interest as they “might have gotten” from the market. though they could have gotten less from the market.
maybe even a lot less,
and the other thing about those who “don’t have the fire” the amount they put away in Social Security is a rather small amount of their “excess” income, so they have not lost any life-style changing money by being “forced” to pay their SS insurance.
but it’s hard for them to understand that, and they really, really hate to see a poor person “idle,” even if that person paid for his own retirement.
Critter & Coberly,
The proposal has nothing to do with any xfers of SS funds to or from educational loans. It simply says if you take the full benefit of an educational loan you delay your SS full benefit by 6 years from the normal .. .at present for that cohort the normal full retirement benefit doesn’t begin until age 67… so you would get SS benefits beginning at age 73.
So to maintain a standard of living from age 67 to 73 you have to either keep working and contributing to SS to age 73, or you have to have saved the equivalent $193K to use in retirement beginning at age 67 until retirement benefits kick in at age 73.
Not only does this reduce the number of years SS has to pay out until you die, but it increases the contribution period by 6 more years, all the while forcing the poorer students to use more of their net income in personal savings to cover retirement costs for 6 years longer than normal.
It’s a rip-off of poorer.. that is most of the potential college educated in future years.
Coberly,
I don’t think you get the SS issue at all.
The issue is making it private or reducing federal outlays (interest payouts) on it.
The GOP wants to eliminate social spending or reduce it to near ‘nil. They would rather you use the SS contribution as you see fit rather than letting the gov’t enforce your retirement benefits for you… thus forcing the laborer to save for retirement however they can.. which all knowledge of people says never happens.
The GOP want to eliminate the employers half of the contribution as well… which won’t end up in employees’ pockets but in employers profits instead.
That is the real issue.. it has noting to do how to fund the Trust Fund… that’s just the propaganda as if it were the issue. you are just one of the patsy’s that fall for this charade.
LT:
And coberly has provided an agreed upon solution to SS outside of AB.
http://bruceweb.blogspot.com/2008/08/angry-bear-social-security-series.html
http://angrybearblog.com/2009/11/bruce-webb-dale-coberly-arne-larson-and.html
Dan here…writes:
The National Academy of Social Insurance report on options for Social Security is public and now available in pdf form. “The purpose of this report is to help analysts and policymakers consider options to bring Social Security into long-term balance in ways that also address concerns about benefit adequacy.”
One cannot simply glance through such dense material and numbers, but I did find the following on page 14 (or actually page 20 of 44 pdf form)
Like many contributors not in the spotlight the hours devoted to creating material to even be noticed, then evaluated, and then published is a testimony to hard work, due diligence, and a non-profit motive. The weekend hours and midnight oil burned by NASI personnel and contributors is rarely noticed by media, nor appreciated by recipients. Many of us talk about ‘they’….well, meet three. Best to Bruce, Dale, and Arne.
Longtooth
i should just ignore you. you are about half right in some of the things you say, but when you call me a patsy you irritate me. i suffer from the delusion that i understand this all very much better than you do.
i don’t have the energy or time to argue with you, so please just present your point of view without belittling mine, and i will avoid commenting on yours.
Here’s an idea. In exchange for student loan forgiveness (or better yet, free college), how about we collect from them higher taxes and more Social Security contributions over their lifetime.
Oh, wait — that’s exactly what happens right now when college graduates get higher paying jobs.
Grab the deal — we can always get out of it 50 years from now — or a lot sooner when (if) labor (as in unions) takes over the country.
Pretty screwy thinking we can plan today what the country will spend on social security half a century from now anyway (see self-flying cars).
Government by flea market.
Each month we take 1/5 of our salary, in cash, and go to the government fair. All the government agencies set up sales booths and compete for our dollars.
We can buy a chunk of tuition, a chunk of pension, a chunk of medical; as our current priorities require. I have to see the complete model before judging. After all, the government suppliers claim to have inside information about our desires, great, let them mark it to market.
This is actually a pretty good idea. Remember it is optional. For some it makes sense, others not. It is the equivalent of borrowing against your 401K or pension plan. I can certainly imagine some poorer student borrowing against his SS to get an education in some hot field where his earnings over a career will dwarf the amount he forgoes in SS. What is wrong with giving some poor student this option?
Sorry Matthew and Sammy:
This idea is the same as not having healthcare insurance which is also a bad idea. Everyone else should not have to end up paying for you when that time comes to retire and you can no longer work. The same holds true for healthcare. Neither should there be a band aid for getting an education by selling out your retirement. Fix the fricking problems of too high interest rates, liar and for-profit schools the same as the Trump institute, and tuition which is unaffordable. Give back the rights to bankruptcy the same as Trump had while bilking others of their money in business. The country’s future depends on a well educated citizenry beyond that of just a BA or BS.
401ks are a lot of promises with little return to offset the taxes you will have to pay when you draw down on it unless you roll it over again. In the end you will be at slightly better than break even.
To those of you believing coberly is full of crap, it is not often the NASI picks up on a commoner’s ideas.
From Page 14 of the NASI Report:
and Footnote 11 reads as follows:
You may not like Dale Coberly and what he is saying at times; but on Social Security, he is on the money. Some of the renown economists whose names get bandied around the blogoshere also find Dale’s remarks as credible.
Sammy
for the same reason you don’t bet the children’s milk money on a sure thing at the race track.
social security is insurance against ending up after a lifetime of work without enough money to retire.
it turns out that without that mandatory insurance too many people arrive at old age too poor to live without public support. SS is not public support, it’s you saving your own money, insured against losses due to bad luck (loss of job or choosing the wrong career), inflation, and even bad decisions… like the one sammy proposes.
Congressman Garrett either does not understand Social Security at all or he cynically knows that you can put any “clever” idea on the table and find suckers to think it is a winner.
again: the cost of “fixing” the “looming bankruptcy” of Social Security is an extra dollar per week per year per worker… to pay for their own costs of living longer out of a paycheck that is not expected to grow as fast as paychecks have grown over the past eighty years.
but the paychecks ARE expected to grow about one percent per year. since the needed tax increase is only about one tenth percent per year this means you will always have more money in your pocket even after paying the higher tax (saving the increased premium) than you have today.
it’s pretty simple. it’s fair. it’s even cheap. so why does everyone twist and turn to come up with some magic solution whereby they won’t have to pay for their own needs in retirement?
coberly,
Borrowing against a small portion of your social security is not perfect, but it is to be compared against the alternatives A) Traditional student loans which demand repayment immediately, not ideal for families, getting started etc. or B) not getting the education. In some cases, trading some future social security payments for education makes sense. Particularly for poorer students.
run,
coberly is not to be taken seriously on Social Security. His analysis is limited to the SS Trust Fund ONLY. He does not take into account the overall Federal budget and other entitlements in the future at all. As a social security recipient he only advocates raising taxes on younger working people. Period. Full Stop. This is not profound, nor deep thinking, only selfish.
Sammy
i was trying to think of a way to be kind to you. but you make it impossible. you know nothing about Social Security and you know nothing about me. But you feel entitled to say any kind of trash that comes into your filthy mind.
coberly,
You want your moolah, every cent. I get that. I don’t blame you. Everyone wants max money. However, I get to call you out on that.
Coberly & Run,
Coberly thinks the problem is how to fix the trust fund without making it appear that people are paying more for SS security… because it’s only $x/week…or “like pocket change”… until it isn’t just pocket change any more at all.
By 2035 it would be 14.4% (or so NASI projects)
14.4% is 2% more than at present (6.2% each for employee & employer). It’s been 6.2% since 1990, prior to which it was 6.06%, and in 1984 – 1987 it was 5.7%, and prior to that 5.4% etc. going further back with yet lower contribution rates. And those rates are AFTER Reagan’s admin increased full retirement ages in two steps from 65 to 67 I made the 66 age cut, missing out on the 65 age cut by 6 months, but my brother’s in the 67 age cut.
And as you’ll recall that was supposed to make the Trust Fund solvent forever more as well. Give up benefits and pay more to get what’s left. Nice ploy.. aka propaganda.
The problem isn’t fixing the trust fund and I’m sure you know this Run. Coberly however hasn’t even yet been able to master the subject.
I pointed out in detail what the real problem is to Coberly when he originally wrote on his understanding and “how to fix it”. He didn’t understand it then and thus he’s no more able to understand it now
Let me say it plainly. Why does the trust fund ever need “fixing”?
And don’t say it’s because population birth rates change since that’s been the case since time began.. The fundamental failure was originally and is still the propaganda passed off as “I’m paying for my future benefits myself”. This was the result of political compromise which had to take into account the RR Retirement fund among other things to make it acceptable.
fwiw I modeled the precise SS formula’s in every detail including annual caps and income levels, employment compensation inflation (which is the inflation factor used to define the inflated benefit), ages for full retirement, market treasury rates, and every other variable input all as variables.
The only thing I held constant was the formula which is fixed by law and hasn’t changed since shortly after inception. All the variables are either extrinsic (nothing the US can do about them) or they are intrinsic functions of policies responses to extrinsic vars and congressional compromises related to tax policies, budget issues, and which party’s in power, etc.
The system we employ is based on pure assumptions of all those variables and those assumptions are by definition therefore required to be changed as real world changes occur, especially in domestic policies. Hence it is always necessary to “fix” the trust fund.
It’s a dumb system designed primarily to give people the impression that they pay for their retirement benefits themselves because that’s the only way a system based on “individualism” can pass congress.
Coberly is not alone in his naiveté’ .. he’s among the rest of the public that doesn’t understand why either benefits have to be reduced or contributions increased under this system.
Longtooth
it is painful to have to respond to you. you speak gibberish but you think you are being clever. trouble is there are thousands or millions of people who don’t think any better than you do who might be fooled into thinking you have said something.
retirement is not free. it is not even cheap. the purpose of Social Security is to make sure you save enough to pay for your own retirement. in return for it being mandatory, it insures your savings against inflation, market losses, personal bad luck, and even personal bad decisions. most people… don’t understand this, which is why SS has to be mandatory… so that we don’t have to pay welfare for them when they can no longer work and they have no savings or insurance.
the actual percent of your income that you will need to save in order to have enough to live when you can no longer work will reach 16%… probably no further… after about twenty years… longer if phased in gradually.
the worker will only see half of that… 8% taken out of his paycheck, as opposed to about 6% today. no one will miss that 2%, especially if it is phased in gradually while incomes are increasing from about 25% to over a hundred percent by the end of the century.
but most people can’t think that straight, and they will easily be stampeded by the bad guys yelling “16%! 16%!” somehow they expect to be able to retire without having saved a dime. or by winning the lottery. or by winning a sure bet on wall street… a bet most people can’t even afford to make. or by “making the rich pay for it” (another extremely unlikely bet.)
it seems particulary stupid of you to say that i am “one of those who doesn’t understand that benefits have to be reduced or contributions increases” right after complaining that i am calling for contributions to be increases.
my whole point has always been that the contribution increase is so small it will never be felt, and any cut in benefits will be life threatening for most people.
i’d be glad to let you keep on stringing words together meaninglessly, but there is too much danger that those who have been lied to about the “looming bankruptcy of SS” will be fooled into thinking there is nothing we can do about it or that it will be a “huge burden” on the young.
the huge burden will come if we don’t do anything.
and it’s people like you who don’t know anything and can’t even think straight for two sentences at a time who will lead themselves into that catastrophe.
Sammy — “His analysis is limited to the SS Trust Fund ONLY. He does not take into account the overall Federal budget and other entitlements in the future at all.”
Some people just do not understand that Social Security is not part of the federal budget. If you believe that, then you must believe that any Treasury Notes that you buy, either outright or as part of an investment plan, makes your investment part of the federal budget also.
That’s just crazy thinking!
Jerry
it’s worse than that.
Sammy’s thesis is that as long as the United Sates has ANYTHING else it wants to spend money on, that money has to come from not paying for Social Security.
Sorry, kids, no milk this month. Daddy needs a new sports car to impress that babe he met at the office party.
except in this case the kids are paying for their own milk (the workers are paying for their own Social Security) and dad just wants to take their milk money, their allowance, their college fund and their mom’s clothes in order to make the down payment on that bitching new car.