Bryan’s post, and the article it quotes, are understating the problem with Obama’s scheme, thanks to the magic of compound interest. Let’s take little Suzy with her $212,000. She takes a job at some appropriately socially-oriented inner-city public-service social worker position, and as a result only has 14,110 per year; we take 10 percent of that as her annual payment. Current student loans are apparently at 8 percent. So, her first year, she pays $1,411 against her loan — which cost $16,960 in interest. That’s about $15,549 over her payments.
Under the current terms of these loans, that excess is added to the principal. So, next year, we’re talking about the $212,000 principal, plus$15,549 added. This is what people in the subprime mortgage business called “reverse amortization”. Using the wonders of technology, I put that in a spreadsheet (see below). The outcome is that really, when the loan is forgiven after 20 years, the total loss to the Government is $923,553, which is, not to put too fine a point on it, almost a million dollars!