My main thought is who is going to come out of the woodwork and oppose these proposals? My guess is the for-profit bottom tier education entities (Corinthian Colleges, Univ. of Phoenix, etc...) will come out swinging to help gut some of these proposals.
Interesting now that this proposal incentives divorce, so we're writing another marriage penalty into law.
I wouldn't jump on this yet, I'll have a more detailed post when I get a chance assuming the above regulations make it into law.
Provisional thoughts on this:
1) If you're married to another high earning professional, you're pretty screwed.
2) Removal of payment cap under PAYE won't affect anyone here when balance > ~1.3x annual income. A $230k loan balance yields a standard 10yr payment = $2670/mo. The removal of this cap under IBR/PAYE means you'd have to make > $320,400/yr to exceed the cap under the 10% PAYE
3) There was probably not going to be anything to forgive at the end anyway. Most of us will end up married and/or in RDP's with someone of like mind and therefore like income. Don't forget annual raises in the equation.
4) This might actually improve the financial situation of EVERY pharmacist, not just those lucky enough to work for gov't/non-profits. Also, with borrowers who took their loans out earlier and were not able to take advantage of PAYE, there are immediate benefits, take this (simplified) example:
Single RPh graduated 2011 works for CVS and pulls in
$130k/yr with a
$230k loan balance @ 7% as of today (unsubsidized for simplicity's sake).
Old method:
IBR, no PSLF, 2% annual raise
Initial payments: $1410/mo, rises to $1668 @ year 10; max payment = $2149 (cap = $2670)
Total paid (P&I): $500,000
Amount forgiven: ZERO, time to loan completion 23.8 years.
Does not qualify for PAYE, nothing to forgive at 25 years.
New method:
PAYE 10%/25yr (Obama FY2015 proposal), no PSLF, 2% annual raise, 3% poverty level increase
Initial payments: $943/mo, rises to $1112/mo @ year 10; $1333/mo @ year 20.
(due to calculator limitation, I had to assume from year 20-25, no raises + no further compounding interest)
Total paid: $350,000
Amount forgiven: $200,000
The big loser will be the person who gets the PSLF cap as shown below:
Scenario: RPh who graduated 2011 working for non-profit at $130k/yr, $230k student loan debt (unsubsidized for simplicity) @ 7%
Old method:
IBR 15%/10yr PSLF, 2% annual raises, 3% poverty level increase
Initial payment: $1415/mo, rises to max of $1668/mo.
Total paid: $184,707
Amount forgiven: $192,283
New method
PAYE 10%/10 yr PSLF capped @ $57,500 remaining paid at year 10; 2% annual raises, 3% poverty level increase.
Initial payment: $943/mo, rises to $1112/mo @ year 10;
Bulk payment occurs at year 10 of $57,500.
@ year 10, total paid = $123,138
PSLF bulk payment @ year 10 = $57,500
Balance remaining @ year 10 after above payments = $205,761
@ year 10, income is now $158,469/yr and new balance is $205,761, let's start the final 15 years of PAYE:
Initial payment: $1180* @ year 10, rises to $1531/mo @ year 25.
Balance remaining @ year 25 = $167,965
Bottom line:
Total Paid: $366,022
Amount forgiven: $225,465
Difference between the two: +$181,315 extra paid over 25yrs
Does anyone want to try to validate my numbers? Calculators used:
http://www.finaid.org/calculators/ibr10.phtml
http://www.finaid.org/calculators/ibr.phtml
Did not take into account NPV of $$, my bad.
