Here's the bottom line: the new law computes subsidies based on income, not discretionary income. For a lot of young graduates, that turns out to be a big problem. If you like math, read on.
Professor Glenn Reynolds of Instapundit has been writing about the "higher education bubble" for some time now. This somewhat-controversial hypothesis claims that the value of a college degree is going down even as the cost of a degree is going up, and that the entire system of higher education in the United States is due for a "correction," much like the housing market bubble that popped in 2007.
Whether the "bubble" is sound economic theory or not, it focuses attention on how school debt burdens young people in an underperforming economy. A recent graduate who borrowed $50,000 for her BA in sociology may find nothing better than Starbucks--unless she's willing to borrow even more to get a masters degree.
Student debt is different from mortgage debt--and every difference disadvantages younger people. Student loans are paid out of after-tax dollars; home loans are paid from pre-tax dollars. Home loans vanish after bankruptcy, student loans stay with you until you die.
So let's put these facts together and see how they apply to the "young invincibles" who are supposed to sign up on the exchanges. A 26-year-old who makes 29,000 in Frederick, Maryland pays $168.00 per month for a "silver" plan, which has a $1,300 deductible and a $6,350 out-of-pocket maximum. A ten year loan for $50,000 at 6.8% costs $575 per month. Rent for a single person in Frederick is over $600 a month. Federal income tax on a person with no dependents or deductions is over $200 per month. Adding it up, we get:
- Income: $29,000
- Fixed Expenses: $21,600
- Federal taxes: $2,400
- Rent: $7,200
- Student loan: $6,900
- Insurance: $2000
- Car loan (4 years on $5000): $1500
- Cell phone (basic plan): $600
- Living Expenses: $2800
- Food ($100 a month for basics): $1200
- Gas (40 miles per day at 22 mpg): $1600
- Discretionary income: $5600
What if this particular graduate is one of those "young invincibles" that the law depends upon? We have to add a few items:
- Young invincible expenses:
- Fast food
- Cable television
- A real car
All that is for a student loan of $50,000 for a graduate with a pretty good job. What about the graduate in the next cubicle with the same salary and a $75,000 loan? His interest payment is just about $3600 more each year, leaving him with less than $200 a month after basic food and gas.
Bottom line? The new law wasn't written by a recent graduate, and things may get worse before they get better. The kind of job you need to pay off the kind of debt you need to get the kind of job you need is too high for subsidies but too low to get ahead in life. And don't forget--this lifestyle of "unsubsidized subsistence" is considered success for the recent graduate.
Is it any wonder that "millenials" aren't excited about the new healthcare law?