The purchasing power of $110-130k starting salary in 2015.

[Incis0r]

Yeah, you pay less per month but you'll be paying less than the interest accumulation so you won't be paying your loan down at all. Per Student Loan Calculator - Bankrate.com a $400,000 loan at 7% interest for 25 years carries a monthly payment of $2827.12. For 20 year repayment the monthly is $3101.20. With IBR/PAYE the new borrower pays 10% of their income for I think 20 years before the rest is forgiven. With a $120,000 yearly income that's only $12,000/yr or $1,000/mth. That is WELL below the monthly payment on a standard 20 year loan and since you're still being charged interest your loan total will not decrease paying $1,000/mth....it'll keep going up. So, keep doing that for 20 years and you'll be left with a HUGE amount for them to forgive errrrr count as taxable income. After 20 years of minimum payments that total for them to "forgive" could be $600,000 and at a tax rate of ~40% that's $240,000 that you'll owe on tax day. I hope you've saved up for it.

Plus I think to use IBR/PAYE you have to reapply each year and show that you're in financial hardship.

That $600K remaining balance is not the only thing you will be taxed on. You will also be taxed on your own earnings in that year.

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[StumpMT]

Well put, I just want to add one thing. That $600K remaining balance is not the only thing you will be taxed on. You will also be taxed on your own earnings in that year. 20 years in, it is not uncommon for dentists to pull in $200K in wage income. So, you'll have 600K "forgiven loans" + 200K income = taxable income of 800K.

That makes your federal tax liability $276K.

That's just ridiculous. I feel students are duped every year with this program. I currently net ~$38,000 at my current job and I'm living very comfortably here in northern Indiana. I'll be attending NYU this fall (unless my wait list at Louisville pulls through) and I'm looking at ~$380,000 in debt when I'm done including living (wife will have a decent job). I plan on doing a standard 25 year loan and paying an extra $1,000/mth. I calculated and making $120,000 and paying extra on my loan I'll still net more than I am now, I'll be doing what I really want, and my loan will be gone after 12 years (That's if I made $120,000 that entire 12 years.....unlikely).

 

[Incis0r]

That's just ridiculous. I feel students are duped every year with this program. I currently net ~$38,000 at my current job and I'm living very comfortably here in northern Indiana. I'll be attending NYU this fall (unless my wait list at Louisville pulls through) and I'm looking at ~$380,000 in debt when I'm done including living (wife will have a decent job). I plan on doing a standard 25 year loan and paying an extra $1,000/mth. I calculated and making $120,000 and paying extra on my loan I'll still net more than I am now, I'll be doing what I really want, and my loan will be gone after 12 years (That's if I made $120,000 that entire 12 years.....unlikely).

You're in great shape!

 

[deleted158872]

Plus I think to use IBR/PAYE you have to reapply each year and show that you're in financial hardship.

Then I wonder how people can remain on it for 20 years if they're earning doctor/dentist's salary....

I can't find any official thorough information on PAYE at all...

 

[deleted158872]

That's just ridiculous. I feel students are duped every year with this program.

i feel the same. there wasn't a "tax bomb" before, though. i've heard there're attempts to eliminate it. http://www.edcentral.org/obama-administration-announces-major-reforms-income-based-repayment/

 

[StumpMT]

I just re-read and I think I misinterpreted your meaning. I think you meant you'll make MORE than 120K over your 12 years....lol I interpreted you saying "unlikely" as less than 120K.

Yes, I think it's unlikely that I'll be stuck at $120,000 for 12 years. I've been doing some research on the community health center and $50,000 tax free for two years of service and it's definitely something that I want to do and learn more about.

 

[deleted158872]

i just read that " the amount of forgiveness that is taxable is limited to the amount of your current assets. The government cannot forgive you into the poorhouse. If in twenty years your assets, bank accounts, home equity, etc is only $240K, then you'd only have to declare a forgiveness income of $240K. Assuming a 1/3 tax rate, you'd only owe an additional $80K in taxes, even if $600K was forgiven. "

now i need an official source to confirm this.

 

[StumpMT]

i just read that " the amount of forgiveness that is taxable is limited to the amount of your current assets. The government cannot forgive you into the poorhouse. If in twenty years your assets, bank accounts, home equity, etc is only $240K, then you'd only have to declare a forgiveness income of $240K. Assuming a 1/3 tax rate, you'd only owe an additional $80K in taxes, even if $600K was forgiven. "

now i need an official source to confirm this.

I think the chances of a dentist only having $240k in total assets after 20yrs is extremely unlikely.

 

[yappy]

All these repayment schemes popping up that are supported by .gov get to me. They don't seem fair to families that spent their own money putting their kids through college, people who were awarded scholarships, or those who chose to forgo college altogether because of the cost, etc.

Who voted for this stuff? For that matter why is the government lending to students at all? It's amazing to me how quickly things can change.

 

[deleted158872]

Who voted for this stuff? For that matter why is the government lending to students at all?

because, ridiculous college tuition means that nobody would be able to afford education.

 

[yappy]

because, ridiculous college tuition means that nobody would be able to afford education.

So the problem is self limiting then isn't it?

 

[deleted158872]

So the problem is self limiting then isn't it?

no, it escalates.

 

[yappy]

no, it escalates.

It has been escalating due to the availability of federal loans. Now we've gone full circle and are back to 'why the government is in the loan business at all" question; albeit, from a practical perspective. My initial question was from an ethical standpoint.

I think a great way to understand the rise in cost of higher ed is to study the housing bubble and the role that lending played. The only difference is that it's easier to get student loans and they're entirely unsecured.

http://www.huffingtonpost.com/michael-b-fishbein/9-striking-similarities-b_b_5062840.html

 

[deleted158872]

It has been escalating due to the availability of federal loans. Now we've gone full circle and are back to 'why the government is in the loan business at all" question; albeit, from a practical perspective. My initial question was from an ethical standpoint.

I think a great way to understand the rise in cost of higher ed is to study the housing bubble and the role that lending played. The only difference is that it's easier to get student loans and they're entirely unsecured.

http://www.huffingtonpost.com/michael-b-fishbein/9-striking-similarities-b_b_5062840.html

so you think the gov. should stay out of "loan business" while colleges are free to charge whatever tuition they want, eh?

 

[Incis0r]

so you think the gov. should stay out of "loan business" while colleges are free to charge whatever tuition they want, eh?

I think what @yappy is saying is that if the government stops unconditionally issuing whatever colleges charge, then colleges that charge unreasonably high prices will be forced to either 1) reduce their costs or 2) shut down. This will reduce the cost of education for all students and will reduce the amount of loans that they have on their heads.

 

[deleted158872]

I think what @yappy is saying is that if the government stops unconditionally issuing whatever colleges charge, then colleges that charge unreasonably high prices will be forced to either 1) reduce their costs or 2) shut down. This will reduce the cost of education for all students and will reduce the amount of loans that they have on their heads.

that's one possible way to do it, but it will take a while before colleges will think of reducing tuition, and during that time, many people will not have access to higher education.
A better solution is to put a cap on tuition and/or open more public colleges and make admissions so easy and tuition so cheap that private colleges can't compete with them.

PS: most Ivy leagues have started making tuition free for some students:
http://www.cnbc.com/id/102556405
http://www.vox.com/2015/4/1/8328091/stanford-tuition-financial-aid

 

[Incis0r]

.

 

[jeffk805dent]

some students." Enough said

and by some students, he/she means less than 6% of the applicant pool

 

[yappy]

that's one possible way to do it, but it will take a while before colleges will think of reducing tuition, and during that time, many people will not have access to higher education.
A better solution is to put a cap on tuition and/or open more public colleges and make admissions so easy and tuition so cheap that private colleges can't compete with them.

PS: most Ivy leagues have started making tuition free for some students:
http://www.cnbc.com/id/102556405
http://www.vox.com/2015/4/1/8328091/stanford-tuition-financial-aid

My position was that due to an unlimited amount of fiat money being supplied, without any eligibility conditions or market relevance, higher ed has responded by increasing tuition year after year. This is a perfectly rational response on apart of colleges and has precedence; whenever the federal government becomes increasingly involved in a market it distorts it. No amount of regulation or price fixing is going to fix it.

What is interesting is that if you look a similar graph comparing CPI to medical services and new home purchases you'll find the same trend. What do all three of those things have in common?

If the federal government stopped lending it would put downward pressure on tuition and college indebtedness would fall.