Question for fellow Student Loan Experts

[Monsterdaddy]

So if you are married to a non-working spouse and have a child in an undergraduate college what's the drawback of the non-working spouse from taking out all the Parent PLUS loans in her name and then: 1) deferring payments until graduation, 2) consolidating to a Direct Consolidation Loan, and 3) pay nothing under ICR with alternative income documentation? In essence, never having to pay a penny back.

The only thing I see is the income tax from when the loan is forgiven in 25 years but that's it. Am I missing something?

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[confettiflyer]

Ahh essentially turning the non-working spouse into the "bad bank?"

You'd have to file married filing separately, which for most people has its own costs vs MFJ.

You also have to hedge whether this non-working spouse will remain so for 20-25 years.

But other than that I actually technically see no issues here, just run the MFJ vs MFS #'a for federal and state to acquire the true cost of this loan, also consider risk of terms changing (low) and impact on non-working spouse's credit/finance ability (low). Remember community property states will divide the income and allocate equally for calculations (but this is obviated with the alt income doc form for student loan purposes).


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[BMBiology]

I was right. Your secret sauce is marrying someone who doesn't work and having multiple babies who you can't feed without the help from the government.


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[a student]

If you ever divorce, your spouse is screwed.

 

[confettiflyer]

If you ever divorce, your spouse is screwed.

Alimony, and it doesn't have to be disclosed as income.

 

[jadedphysiotherapist]

So if you are married to a non-working spouse and have a child in an undergraduate college what's the drawback of the non-working spouse from taking out all the Parent PLUS loans in her name and then: 1) deferring payments until graduation, 2) consolidating to a Direct Consolidation Loan, and 3) pay nothing under ICR with alternative income documentation? In essence, never having to pay a penny back.

The only thing I see is the income tax from when the loan is forgiven in 25 years but that's it. Am I missing something?

This is the thing that will prevent education reform for a generation losing the ability to contribute to the economy because of student debt.

 

[confettiflyer]

The only thing I see is the income tax from when the loan is forgiven in 25 years but that's it. Am I missing something?

So I gave it more thought and here's an argument against it: you're taking a non-dischargeable debt out against a lender that has the ability to garnish wages, social security, file tax liens, and seize tax returns. The terms and interest rates are attractive even if the "worst case scenario" should happen and you are required to pay the loan, but I'm going to invoke the "life happens" clause and am trying to imagine a scenario where assets and income have to flow to the spouse, thus triggering repayment when a repayment is not actually feasible.

Say you are critically injured, are unable to work, and have exhausted any long-term disability insurance. Your non-working spouse now has to work to make up the income drop, and if you have to be confined to a nursing home, in order to have Medicaid cover it, you'll have to spend down/transfer assets outside of the 5 year window (I think, I'm not an expert at Medicaid asset relinquishment). This essentially turns the non-working spouse into the breadwinner and triggers repayment.

There's holes in my scenario there, but when faced with a 20-25 year gamble presuming all factors have to stay the same, it's a touch risky IMO. I probably wouldn't do it.

You're almost better off doing the credit card extraction dance.... open and build up credit card limits, take out cash, set aside a set ratio for settlement, and default. Take the charge off and ensure the cash settlement prevents legal action, which obviates the need for bankruptcy. Set aside for taxes from the 1099C, and that's that. I had a business owner friend net about $60k after taxes/settlement this way.

 

[confettiflyer]

You're a ****ing idiot and this type of trash is what will prevent education reform for a generation losing the ability to contribute to the economy because of student debt.

Scum of society if this wasn't just a hypothetical and was a serious inquiry.

You should place getting intentionally hit by a truck and suing the driver for hitting someone who jumped out into the street to intentionally loot their bank account through court manipulation.

Mods....censor me. Idc, this is trash and scum inquiry....period. Should be slapped in the face repeatedly in real life

How is this different from Medicaid asset spend down or S-corp pass through of carry forward net operating loss with a conversion to C-corp after profitability? Both are manipulations of tax code, assets, and income when there is likely a clear ability to pay.

 

[jadedphysiotherapist]

How is this different from Medicaid asset spend down or S-corp pass through of carry forward net operating loss with a conversion to C-corp after profitability? Both are manipulations of tax code, assets, and income when there is likely a clear ability to pay.

Did I ever say it was different?

 

[owlegrad]

How is this different from Medicaid asset spend down or S-corp pass through of carry forward net operating loss with a conversion to C-corp after profitability? Both are manipulations of tax code, assets, and income when there is likely a clear ability to pay.

Because it is student loans and people get butthurt about them.

 

[lord999]

SSR 79-4

Hope she dies before you is the problem. SS survivor wages are garnished in those circumstances. Possibly public assistance as well too (or disqualifies you in AZ considering that they try to find any excuse to kick people off DES).

There's also weird effects on "community property" if you end up getting divorced (it would be a successful argument that while she signed for the debt, it benefited the child which was a community matter), so don't think you get out of that easily in AZ Family Court (there's a night pharmacist in Glendale that has some direct experience with this).

 

[confettiflyer]

Did I ever say it was different? Maybe both should be hit by trucks when an entire generation is trying to create an economy shackled to unnecessary student debt through government loans.

Lol you just said the 85 year old in a nursing home should get hit by a truck.


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[confettiflyer]

SSR 79-4

Hope she dies before you is the problem. SS survivor wages are garnished in those circumstances. Possibly public assistance as well too (or disqualifies you in AZ considering that they try to find any excuse to kick people off DES).

There's also weird effects on "community property" if you end up getting divorced (it would be a successful argument that while she signed for the debt, it benefited the child which was a community matter), so don't think you get out of that easily in AZ Family Court (there's a night pharmacist in Glendale that has some direct experience with this).

Here's the rub though...these IDR plans count $0/mo as an on-time payment if your income is zero. No legal action, no collections, no garnishment. Even if SS survivor benefits count as income for repayment (should he/she be a widow/widower while still in the 20-25 year repayment window), their income would likely be under the 150% of FPL threshold for payment, or just slightly over.

So if it's bad, it gets very bad very quickly with almost no recourse. But if it works, it works.

The working spouse can hedge this with a whole life insurance policy and/or establish a trust, if anything to keep the non-working spouse from acquiring assets or declarable/taxable income.


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[confettiflyer]

Because it is student loans and people get butthurt about them.

I just don't think he understands how pass-through losses work, and that everyone who starts a small business uses them. He just said they should all get hit by a truck, hahahah.


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[Monsterdaddy]

So I gave it more thought and here's an argument against it: you're taking a non-dischargeable debt out against a lender that has the ability to garnish wages, social security, file tax liens, and seize tax returns. The terms and interest rates are attractive even if the "worst case scenario" should happen and you are required to pay the loan, but I'm going to invoke the "life happens" clause and am trying to imagine a scenario where assets and income have to flow to the spouse, thus triggering repayment when a repayment is not actually feasible.

Well the lender cannot garnish anything if the loan is current and if ICR calculates a payment of zero then the lender can take no action. And even if the spouse uses alternative income documentation the family size is still 2 so you can still exempt $20,290 of AGI which is after any pre tax deductions so the spouse can earn some income. And even if small payments are calculated it probably pales in comparison to the loan balance.

As for married filing separately, when you start making $150-$200K in income all the benefits of married filing jointly tend to disappear and MFS has no downside.

I think the easiest fix would be to require spousal income to always be included like for REPAYE. I'm kind of surprised that there are zero articles talking about this "scheme" or closing this loophole. Of course, that won't help the government if the couple divorces -- as someone mentioned alimony does not need to be included.

 

[confettiflyer]

I think the easiest fix would be to require spousal income to always be included like for REPAYE. I'm kind of surprised that there are zero articles talking about this "scheme" or closing this loophole. Of course, that won't help the government if the couple divorces -- as someone mentioned alimony does not need to be included.

Some consider PSLF's lack of upper cap a loophole and one that generates a moral hazard to overborrow, as it makes the loan balance irrelevant.

I suppose the easiest fix is to just make REPAYE the only IDR plan available and somehow close off the others (does that require a legislative fix?)


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[Monsterdaddy]

I suppose the easiest fix is to just make REPAYE the only IDR plan available and somehow close off the others (does that require a legislative fix?)

I don't think it does, I think Obama instituted REPAYE. People currently on IBR and ICR would see a huge financial benefit if they could access REPAYE, reducing their payments by a 1/3 to more than 1/2.