New student loan proposal: only 57.5 k is forgiven after 20 years!

[BMBiology]

"Loans of less than $57,500 would be forgiven after 20 years, while loans in excess of that amount would be forgiven after 30 years."

You would also need to pay federal income taxes on the "forgiven" amount (some states also require you to pay state income taxes) so expect at least 28-33% tax.

http://www.bloomberg.com/news/2014-07-16/rubio-elbows-way-into-democrats-student-loan-issue.html

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[BMBiology]

The government is getting cheaper and cheaper with each new proposal~!

 

[anewmanx]

It takes hard work for legislators to widen that gap between the rich and the poor. We don't want a middle class with power, now do we!

 

[trailerpark]

I thought if you had 200k+ student loan debt and you use IBR, your payments wont even cover the interest so when it comes time for forgiveness you pretty much need the whole principal forgiven. Didn't someone do the math? How will this work now with a cap?

I personally don't think the government should be paying for anyone's student loans. Let them stretch it out 40 years if need be and then keep on deducting it from their social security check and tax refunds.

 

[confettiflyer]

$.10 says this dies in committee. Doesn't Congress go into recess in two weeks, anyway?

The key question becomes.... what's the income based repayment %?

 

[MatCauthon]

I'll stick to my original plan of paying off my loans in 7 years. I cannot even imagine these expensive pharmacy schools such as USC where the fees for attending pharmacy school exceed $70k per year. http://pharmacyschool.usc.edu/programs/pharmd/pharmdprogram/cost/

 

[confettiflyer]

I'll stick to my original plan of paying off my loans in 7 years. I cannot even imagine these expensive pharmacy schools such as USC where the fees for attending pharmacy school exceed $70k per year. http://pharmacyschool.usc.edu/programs/pharmd/pharmdprogram/cost/

I always hated these "costs of attendance" figures, you figure you're going to pay for room and board, "personal," and transportation costs whether you go to pharmacy school or spend your days doing something else.

 

[MatCauthon]

I always hated these "costs of attendance" figures, you figure you're going to pay for room and board, "personal," and transportation costs whether you go to pharmacy school or spend your days doing something else.

I agree to an extent. My favorite part is that it costs $3500 to buy a computer. But you have to remember that if you weren't in school you would be working and not taking out loans.

That said, $15,900 for Room and Board in Los Angeles might not even cut it in Los Angeles unless you have a bunch of roommates.
Also, these cost of attendance don't even take into account a huge variable which is interest. I would imagine the interest for a 4-year program such as USC, assuming someone takes out ~280,000 in principal, would be over $30k since the loans are unsubsidized. This means a person would be taking out over 300k in loans. I cannot even fathom it. Residency would even further compound the problem.

 

[BMBiology]

$.10 says this dies in committee. Doesn't Congress go into recess in two weeks, anyway?

The key question becomes.... what's the income based repayment %?

I am predicting the 57.5 k cap will pass after the midterm election. The Obama administration made a similar proposal in their budget.

"Among the changes proposed Tuesday, individual borrowers would face new limits on how much debt that could have forgiven. The amount forgiven for public-sector workers would be capped at $57,500. Borrowers with debt loads above $57,500 would make payments for 25 years. And payments for married borrowers filing separately would be calculated on their combined household adjusted gross income."

http://blogs.wsj.com/washwire/2014/...oposes-broader-debt-forgiveness-for-students/

 

[awval999]

^i agree it will get done in the lame duck period.

Never will those physicians get their 400k in loans forgiven after 10 years tax free. Never.

We will end up a 10% pretax (paid with post tax dollars) 20-30 year "forgiveness" for those borrowers who took out insurmountable student loans.

So pretty much an additional lifetime tax.

 

[BMBiology]

We will end up a 10% pretax (paid with post tax dollars) 20-30 year "forgiveness" for those borrowers who took out insurmountable student loans.

250 k with 6.8% annual interest for the next 30 years? tax bomb after 30 years? that is a crappy deal!

Good luck trying to juggle your student loan debt with the mortgage and family to support well into your 50s.

 

[confettiflyer]

Aren't most physicians employed by private groups? I know at least in California, non-profit hospitals legally can't hire physicians.

The MD forum has a more extensive discussion on this part if anyone wants to read there.

 

[BMBiology]

Aren't most physicians employed by private groups? I know at least in California, non-profit hospitals legally can't hire physicians.

The MD forum has a more extensive discussion on this part if anyone wants to read there.

Too bad it doesn't matter if it is one or one hundred. The public will demand a change. The politicians know this. That is why they are trying to get ahead of the curve.

It is going to cost you dearly if you think otherwise.

 

[Momus]

Coz most students don't have a clue about finance, let alone their own student loan...

 

[BMBiology]

^^ even if you tell them, they don't want to hear about it. They figure they have years to pay it off so why do they need to think about it?

Answer: every dollar they borrow becomes two dollars after 10 years. The magic of compounding interest.

Putting your head in the sand is not an effective repayment strategy.

 

[confettiflyer]

Except we're all on this sinking boat together!

 

[Gombrich12]

It's clear that PAYE/IBR will be curtailed in the future, the question is will it be retroactive and how will it affect students enrolled at the time? I have a feeling it won't be retroactive, but the people who are enrolled in school at the time of legislation will get screwed over with part of their loans.

 

[confettiflyer]

It's clear that PAYE/IBR will be curtailed in the future, the question is will it be retroactive and how will it affect students enrolled at the time? I have a feeling it won't be retroactive, but the people who are enrolled in school at the time of legislation will get screwed over with part of their loans.

Likely not, ICR + 25 year forgiveness has been around since 1994, it wasn't messed with or tweaked when CCRA 2008 established IBR + PSLF. Further, IBR wasn't messed with when PAYE was established ~2012. The Obama Budget proposal has been interpreted by the Dept of Ed. to be effective July 1, 2015 (should it pass as-is) and is not retroactive (that is, ICR/IBR/PAYE in their current iterations remain intact).

The Warner/Rubio proposal (aka The Dynamic Repayment Act of 2014) establishes IDEA (Income Dependent Education Assistance Loan Program) with varying forgiveness at 20 years and 30 years, but leaves intact ICR, IBR, PAYE, and PSLF for those who already have it.

 

[BMBiology]

Except we're all on this sinking boat together!

I am already on shore! You are still looking for a life jacket.

 

[confettiflyer]

Okay kiddos, time for some actual details of The Dynamic Repayment Act of 2014 (Warner/Rubio senate bill). The text is here.

Here are some cliff notes based off of my interpretation of it:

• Effective July 1, 2015
• Establishes the IDEA Loan Program (another acronym for the student loan world)
• Becomes the sole loan type and repayment program
• ICR, IBR, PAYE grandfathered in...but you may apply for an IDEA Consolidation Loan if you want.
• Interest rate = 10 year T-Bill note + 2.05% capped at 8.25%
• Grad loans are + 3.6% capped at 9.25%; Not sure if these float for life or you lock them in at some point.
• FYI, 10 year t-bill rate as of today is 2.48% (you do the math)
• Repayment is 10% of income with a $10,000 exemption (adjusts with CPI annually).

• No more subsidized anything for anyone, so interest accumulates from day 1 except during your grace period.
• Active duty military = no accrual of interest up to 5 years
• The max undergraduate aggregate limit is forgiven after 20 years (currently $57,500, increases as time goes on)
• The remainder is forgiven after 30 years
• Does not include any exceptions in making this a taxable event, therefore the tax bomb exists.
• 499E) Total amount paid for the year tallied up, and if that person underpaid, the borrower will get a bill for the difference.
• Failure to file a tax return and you don’t file after 90 days of being notified = in default of the loan (unless you aren't, by law, required to file one, then your IDEA repayment is zero)
• Employer withholding, but opt out will exist.
• If you don’t pay at least 90% of what you owe by December 31st, you’ll get penalized 10% of the 10% you owe.
• 
  
• 
  
• 
  
• Loan Cancellation for Teachers = intact and carried forward
• Loan forgiveness in areas of national need = intact and carried forward
• Loan repayment for civil legal assistance attorneys = intact and carried forward
• All other loan forgiveness programs are not addressed (including PSLF) and are therefore not assumed to be intact and carried forward under an IDEA loan.
• All other loan repayment programs (ICR, IBR, PAYE) are not addressed and therefore will exist concurrently; however, after July 1, 2015 borrowers will no longer be able to select these loan types and therefore will no longer be able to participate in PSLF.

 

[confettiflyer]

I am already on shore! You are still looking for a life jacket.

You said you own a home...so unless you're already dead, then all this macroeconomic detritus is affecting you!

 

[confettiflyer]

PS here's the Slate article to go with it:

http://www.slate.com/blogs/moneybox...ent_loan_bill_great_legislation_but_does.html

 

[BMBiology]

You said you own a home...so unless you're already dead, then all this macroeconomic detritus is affecting you!

or a buying opportunity.

 

[awval999]

I think you have to sweat it until 2017. Either the Congress will step in BEFORE the first MDs get their $300k+ forgiven or they won't. If they don't by then, I don't think they ever will do the whole retroactive thing.

However, I will say this, I think with each passing year, it's more likely that those lucky borrowers may actually get the PSLF.

 

[confettiflyer]

I think you have to sweat it until 2017. Either the Congress will step in BEFORE the first MDs get their $300k+ forgiven or they won't. If they don't by then, I don't think they ever will do the whole retroactive thing.

However, I will say this, I think with each passing year, it's more likely that those lucky borrowers may actually get the PSLF.

I think you have enough over-leveraged attorneys making $50k in public service and a sheer lack of neurosurgeons going in for PSLF that it'll stick around and no one will want to tinker with a Bush-era law. The general pattern is to just let things sunset(ie Bush tax cuts).

I think the Warner-Rubio bill will pass with a few edits setting the exempted amount higher than $10k (I see it amended to revert back to 150% of the FPL) which effectively ends PSLF for new loans going forward. Congress will declare the student loan crisis over, and 2007-2018* will be the golden/swan song years of PSLF.

It becomes another, "sucks to be you, young buck!" situation.

Now I know how it feels to be a baby boomer with full social security, practically free college education, and a growing economy. How quaint!

*2018 because if you took out your first loan before 7/1/15 I have a feeling you'll be grandfathered in under old plan/rules. At least the current crop of pre-* students will know this before going all-in.

 

[BMBiology]

^ if they cap at 57.5 k, what is your plan?

 

[confettiflyer]

^ if they cap at 57.5 k, what is your plan?

If they cap PSLF at 57k (or whatever the max undergrad rate is in 8-ish years)?

Then I'll push and pay it down, I mean nothing more creative would be possible. That was always the next plan.

I'd just set my payments such that whatever remains at year 10 takes max advantage of the capped forgiveness.

I've weighed the risks and and this is a calculated one for sure. If anyone wants to run a Monte Carlo simulation be my guest.

 

[Beacon]

Basically an anti marriage bill if they force those filing separate to use combined income for the income based repayment amounts.

 

[rxdawg21]

I'm not quite sure if I'm understanding the cap on the forgiveness. Lets say I want to do the PSLF, and I have 150k in loans, would I need to have a balance of 57k by the 10th year to have the rest forgiven, or would I need to do 20 years no matter what since my original balance was > 57k. Also if they do the marriage thing It won't even be worth it as both my girlfriend and I will be pharmacists. so we would be expected to pay 20k a year anyways.

 

[BMBiology]

^^ don't forget the tax bomb. You would need to pay federal income tax (33% for pharmacist) and state income tax if applicable on the forgiven amount.

 

[gwarm01]

I'm hoping that those of us already enrolled in the PSLF program get to keep the full forgiveness without the tax-bomb. If not, I wish they would hurry up and let me know so I can start paying off my loans aggressively rather than thinking I'm taking advantage of a great opportunity.

 

[rxdawg21]

^^ don't forget the tax bomb. You would need to pay federal income tax (33% for pharmacist) and state income tax if applicable on the forgiven amount.

Bmb I hardly post on here and I am one that applauds most of your posts as people are taking out way to many loans in what seems to be a field way past it's prime (however things can change although I'm not optimistic) however there is no tax bomb on the Pslf, it's 10 years and gone no taxes whatsoever. The tax bomb is for those not in the public sector. Just wanted to point this out, and from reading the dm forum it seems the majority believe the new laws will grandfather those in that already started...we will see about that.

 

[BMBiology]

^^ You are right. There is no tax bomb yet.

 

[user3]

Okay kiddos, time for some actual details of The Dynamic Repayment Act of 2014 (Warner/Rubio senate bill). The text is here.

Here are some cliff notes based off of my interpretation of it:

• Effective July 1, 2015
• Establishes the IDEA Loan Program (another acronym for the student loan world)
• Becomes the sole loan type and repayment program
• ICR, IBR, PAYE grandfathered in...but you may apply for an IDEA Consolidation Loan if you want.
• Interest rate = 10 year T-Bill note + 2.05% capped at 8.25%
• Grad loans are + 3.6% capped at 9.25%; Not sure if these float for life or you lock them in at some point.
• FYI, 10 year t-bill rate as of today is 2.48% (you do the math)
• Repayment is 10% of income with a $10,000 exemption (adjusts with CPI annually).

• No more subsidized anything for anyone, so interest accumulates from day 1 except during your grace period.
• Active duty military = no accrual of interest up to 5 years
• The max undergraduate aggregate limit is forgiven after 20 years (currently $57,500, increases as time goes on)
• The remainder is forgiven after 30 years
• Does not include any exceptions in making this a taxable event, therefore the tax bomb exists.
• 499E) Total amount paid for the year tallied up, and if that person underpaid, the borrower will get a bill for the difference.
• Failure to file a tax return and you don’t file after 90 days of being notified = in default of the loan (unless you aren't, by law, required to file one, then your IDEA repayment is zero)
• Employer withholding, but opt out will exist.
• If you don’t pay at least 90% of what you owe by December 31st, you’ll get penalized 10% of the 10% you owe.
• 
  
• 
  
• 
  
• Loan Cancellation for Teachers = intact and carried forward
• Loan forgiveness in areas of national need = intact and carried forward
• Loan repayment for civil legal assistance attorneys = intact and carried forward
• All other loan forgiveness programs are not addressed (including PSLF) and are therefore not assumed to be intact and carried forward under an IDEA loan.
• All other loan repayment programs (ICR, IBR, PAYE) are not addressed and therefore will exist concurrently; however, after July 1, 2015 borrowers will no longer be able to select these loan types and therefore will no longer be able to participate in PSLF.

the bill seems aimed at setting up an income based repayment system that is simpler, less hassling and more convenient for borrowers to participate in. They should have just set up a system like this with the current PAYE plan.

but on the other hand, why not just forgive the loan in exchange for the borrower agreeing to have the state seize a certain % of income for X years?

 

[confettiflyer]

. They should have just set up a system like this with the current PAYE plan.

That is the competing Obama Budget plan proposed a few months ago.

 

[BMBiology]

but on the other hand, why not just forgive the loan in exchange for the borrower agreeing to have the state seize a certain % of income for X years?

Because people will find a way to abuse it. For example if my spouse makes good money and I have 250 k in student loan, what is the incentive for me to keep on working? I can stay at home, take care of the children and after 20 years, poof my student loan debt is gone. That is why the "tax bomb" has to be there. There has to be a consequence for not aggressively paying off your student loan and for having a large chunk of student loan left after 20 years. If there's none, then people would just borrow to the max and schools would keep on increasing tuition.

 

[confettiflyer]

Because people will find a way to abuse it. For example if my spouse makes good money and I have 250 k in student loan, what is the incentive for me to keep on working? I can stay at home, take care of the children and after 20 years, poof my student loan debt is gone. That is why the "tax bomb" has to be there. There has to be a consequence for not aggressively paying off your student loan and for having a large chunk of student loan left after 20 years. If there's none, then people would just borrow to the max and schools would keep on increasing tuition.

The incentive is that you would far and away make so much more money working than sitting with your thumb in your ass waiting for your loan to disappear.

Not accounting for inflation, you'd make $2.6M gross over 20 years ($130k/yr x 20), even subtracting any student loan payments of any kind is >>>>>> any forgiven amount w/ a tax bomb.


But the 2nd part of your post addresses the moral hazard of the thing and I agree on a macroeconomic basis, but your first paragraph addresses something else.

The question should be "what's my incentive to pay" not work.

 

[BMBiology]

Not accounting for inflation, you'd make $2.6M gross over 20 years ($130k/yr x 20), even subtracting any student loan payments of any kind is >>>>>> any forgiven amount w/ a tax bomb.

I dont want to go off topic but this is misleading. Sure, you will make more money if two professionals work but is it worth it after all the costs?

You can read it here, "the hidden costs of a dual income household".

http://whitecoatinvestor.com/the-hidden-costs-of-a-dual-income-household/

I would rather have one spouse stay at home and take care of the children. I would gladly let the government pay her student loan debt. I am sure many couples would do the same.

 

[user3]

Because people will find a way to abuse it. For example if my spouse makes good money and I have 250 k in student loan, what is the incentive for me to keep on working? I can stay at home, take care of the children and after 20 years, poof my student loan debt is gone. That is why the "tax bomb" has to be there. There has to be a consequence for not aggressively paying off your student loan and for having a large chunk of student loan left after 20 years. If there's none, then people would just borrow to the max and schools would keep on increasing tuition.

but you can already do this under PAYE, which Obama has now expanded to all borrowers. If borrowers were able to have their loans "forgiven" in exchange for giving up 10% of their discretionary income for 20 years, all this would mainly do is just change the sequence of events (now, the tax bomb is a whole separate issue). I think the government could very easily enforce such payments, so why not do it this way? Current borrowers will eventually be receiving the forgiveness anyway.

And if one wanted to "buy out" of these payments, they could do so by paying whatever the un-forgiven balance with interest (minus the payments) would have been.

FWIW, there is currently legislation pending in 20 states to offer "income share arrangements", where the state pays the students' tuition at public universities in exchange for X % of their future income for Y years.

 

[BMBiology]

^^ I don't know what point you are trying to make.

Under PAYE, you would need to pay income taxes on any amount that is forgiven after 20 years. Expect 33% federal income tax plus state income tax when applicable (expect 9% if you live in California). That is the "tax bomb". It is going to be costly.

Also remember only certain federal loans are covered under PAYE. Parent plus loan is not. Private student loans are not.

So think again if you are thinking you would pay the same if you had borrowed 100 k vs 200 k.