Forgive Student Loans?

[RockyTop85]

I said gross of 85. Take the standard deduction of 13K or so and you are at AGI of 72 which I think comes out around 165. AGI is not gross.

So your concern is that it’s an over correction that makes the terms too favorable, not that people will get buried under unpaid interest?

 

[volinbham]

So your concern is that it’s an over correction that makes the terms too favorable, not that people will get buried under unpaid interest?

both really and that it becomes and even bigger entitlement system. At the macro level we as a country will borrow money to finance student loans, the interest received will be less than the interest we pay so it increases the deficit. In addition, the 20 or 25 year sunset tells us that the principal itself returned will be less than the money paid out which is another hit on the deficit.

the students will be incentivized to borrow more since for many the repayment plan is cheaper than even just paying the interest. it is the people who will be earning less that will be incentivized to borrow more since the delta between repayment and real interest costs is greatest for them and anyone who does the minimum payment plan is going to be holding debt for at least half of their adulthood.

probably encourages more people to go to college than otherwise should - at a minimum this sweetheart deal should apply to trade schools. more money available for college students means college costs go up.

bad incentives all around.

 

[Vol423]

the proposed caps on payment relative to annual salary. I don't recall where the breakeven was but it was well into six figures before your minimum monthly payment based upon a % of your salary came anywhere close to paying of the loan in the 20 or 25 year window they proposed. At lower income levels (40-50K?) if you maxed out loans your minimum monthly payment wouldn't cover the monthly accruing interest.

Capping the amount of interest that has to be paid based on a % of earnings makes absolutely no sense unless a cap is also placed on the % of interest that is charged on the loan. Without capping the % of interest accruing on the loan, you actually put the borrower in a FAR worse position by placing a cap on amount of the payments.

 

[Vol423]

Assuming that’s correct and I know you’re smart enough to do that math correctly so it likely is correct, the government set non fiscally educated naive college kids up for lifetime indebtedness. That’s pure bad faith legislation. The Feds aren’t helping anyone achieve their dream here they are selling them into financial slavery. That’s pathetic.

Maybe, but everyone in the federal government is non-fiscally educated and naive as well. You actually think the morons in charge understand the ramifications of the laws that they're passing? No chance in hell. That's a HUGE part of the problem.

 

[volinbham]

Capping the amount of interest that has to be paid based on a % of earnings makes absolutely no sense unless a cap is also placed on the % of interest that is charged on the loan. Without capping the % of interest accruing on the loan, you actually put the borrower in a FAR worse position by placing a cap on amount of the payments.

I may have said it wrong earlier - the interest paid isn't capped; there's a minimum payment and in many (most?) cases the minimum payment is less than the accrued interest which in effect raises the principal.

 

[volinbham]

seems the smart move would be max out the loans; pay the minimum payment and ride it out for 20 or 25 years. take any monies you would use to pay the principal and either pay down other debt or invest it. when you are 45 or 50 the debt is discharged and you've got the financial benefits from having access to the money the whole time.

 

[Vol423]

you can run some basic numbers here.

Discretionary Income Calculator for Student Loans - NerdWallet

under the old system a single person with an AGI of 40,000 would pay a minimum of 151 a month and up to 424

under the proposed system the same person would pay 30 a month.

assume a modest student loan debt of 20K @7% and the annual interest alone is 1400 while the minimum payment is 360. Borrow up to the maximum and the story gets even worse. Under the existing system the borrower makes some slight head way on the principal paying the minimum.

It's free money. The loan is forgiven after 20 or 25 years depending on the plan.

I'll revise the scenario to match the current subsidized interest rate of 5%. Now the student would only under pay the annual interest by (1000-360) 640 a year. In year two assuming the income doesn't change the underpayment is greater.

The borrowers AGI (not gross income) has to be $52-53K for the minimum payment to match the annual interest.

It's not a lifetime as the loans would be forgiven after 20 or 25 years.

A single person could borrow 40k for college and earn close to 100K and never pay back any of the principal - monthly payments of about 165-170 until it's forgiven. A banging deal if you ask me.

That is absolutely absurd.

 

[RockyTop85]

both really and that it becomes and even bigger entitlement system. At the macro level we as a country will borrow money to finance student loans, the interest received will be less than the interest we pay so it increases the deficit. In addition, the 20 or 25 year sunset tells us that the principal itself returned will be less than the money paid out which is another hit on the deficit.

the students will be incentivized to borrow more since for many the repayment plan is cheaper than even just paying the interest. it is the people who will be earning less that will be incentivized to borrow more since the delta between repayment and real interest costs is greatest for them and anyone who does the minimum payment plan is going to be holding debt for at least half of their adulthood.

probably encourages more people to go to college than otherwise should - at a minimum this sweetheart deal should apply to trade schools.

bad incentives all around.

I don’t see how people getting buried under interest is going to occur given that any interest over the monthly payment amount doesn’t accrue. Starts last paragraph on page 1.

It’s not a perfect fix, it would be unsurprising if some elements of it cause a net negative. Particularly in revenue, although that seems intentional. But I think you’re glossing over the extent to which these problems already exist or are exaggerating the increase in the frequency at which they will occur under the new rule.

There are still caps on what can be borrowed and when, so I’m not sure how much room there is for growth in low-income people borrowing more.

Not everybody is going to pay just the income based minimum. You seemingly didn’t. I didn’t. Some people already pay more now to avoid paying more over time and they’ve seemingly driven a profitable system. I don’t know why we would assume that won’t still happen. The interest changes make minimum payments more appealing at certain times, but again, I don’t think you can acknowledge that that’s part of the new rule and still say you’re worried about people getting buried under interest.

To the degree the interest changes tend to incentivize making the minimum payment that incentive seems more oppositional to just making no payment at all. AFAIK, all they can really do now is torpedo your credit and make some embarrassingly vague creepy calls to your friends and friends of friends. At least I think that’s what that was about, it was vague. Some people who would have gotten buried to the point of giving up under the current system will pay something just to avoid getting buried under the new system.

The payment threshold is 10% for graduate degrees, that already bakes in some level of mitigation of the degree of the correction for people with presumably higher income. Up 60% of the outstanding debt, if rando twitter user is to be believed. At 72k AGI you’d pay off your graduate degree pretty much pay the same as current income based repayment.

The extra $150-$200/month gets cycled back into the economy and comes back in the form of sales tax, income tax, and other forms of government theft.

Kids going to college clearly aren’t contemplating the 20-years-down-the-road impact of student loans, that’s part of the problem, so I’m not sure this does anything in terms of sending more people to college.

It seems like a potential for improvement in some of the problems and when the new problems crop up we probably have to whack-a-mole those too.

 

[RockyTop85]

I may have said it wrong earlier - the interest paid isn't capped; there's a minimum payment and in many (most?) cases the minimum payment is less than the accrued interest which in effect raises the principal.

This is false. I have told you this twice and provided two links.

 

[volinbham]

I don’t see how people getting buried under interest is going to occur given that any interest over the monthly payment amount doesn’t accrue. Starts last paragraph on page 1.

It’s not a perfect fix, it would be unsurprising if some elements of it cause a net negative. Particularly in revenue, although that seems intentional. But I think you’re glossing over the extent to which these problems already exist or are exaggerating the increase in the frequency at which they will occur under the new rule.

There are still caps on what can be borrowed and when, so I’m not sure how much room there is for growth in low-income people borrowing more.

Not everybody is going to pay just the income based minimum. You seemingly didn’t. I didn’t. Some people already pay more now to avoid paying more over time and they’ve seemingly driven a profitable system. I don’t know why we would assume that won’t still happen. The interest changes make minimum payments more appealing at certain times, but again, I don’t think you can acknowledge that that’s part of the new rule and still say you’re worried about people getting buried under interest.

To the degree the interest changes tend to incentivize making the minimum payment that incentive seems more oppositional to just making no payment at all. AFAIK, all they can really do now is torpedo your credit and make some embarrassingly vague creepy calls to your friends and friends of friends. At least I think that’s what that was about, it was vague. Some people who would have gotten buried to the point of giving up under the current system will pay something just to avoid getting buried under the new system.

The payment threshold is 10% for graduate degrees, that already bakes in some level of mitigation of the degree of the correction for people with presumably higher income. Up 60% of the outstanding debt, if rando twitter user is to be believed. At 72k AGI you’d pay off your graduate degree pretty much pay the same as current income based repayment.

The extra $150-$200/month gets cycled back into the economy and comes back in the form of sales tax, income tax, and other forms of government theft.

Kids going to college clearly aren’t contemplating the 20-years-down-the-road impact of student loans, that’s part of the problem, so I’m not sure this does anything in terms of sending more people to college.

It seems like a potential for improvement in some of the problems and when the new problems crop up we probably have to whack-a-mole those too.

1. Thanks for the clarification. It appears the principal will not increase.

2. I disagree with this assessment of glossing over or exaggerating the frequency. For starters the repayment minimums are drastically different and there is no penalty for not retiring any of the principle.

3. My point about borrowing caps is that many students do not borrow to the caps - this incentivizes them to do so. The average loan is considerably below the cap.

4. the last point first - getting buried under interest was never a large concern of mine as the loan is forgiven after a period of time. I stand corrected that the principal will not increase but even if the same % of borrowers pay the minimum as before we will increase the # of borrowers who've paid down none of their principal. there is virtually no incentive to pay down any principal (unless you think you can dispense it all in less than 20 years) since your payment is pegged to your income rather than the amount you owe. In my case I paid down early because my payments were already principal + interest minimums AND it was not going away. my minimum payments would never end if I didn't pay it faster. It was treated as a standard, installment loan.

5. the graduate schedule doesn't address the UG schedule which represents a much greater percentage of borrowers.

6. the recycling argument suggests we should give everyone these loans since it pays for itself by cycling back into the economy. if your argument is that this new approach isn't going to change the deficit then I'd like to see some calculations showing so.

7. when you sign loan agreements you are presented with information about how much you will have to pay monthly. 30 bucks a month vs 150 is pretty easy even for a 20 year old - when you then tell them that if they don't pay it off by the time they are 40 it magically goes away - well, these are what economists like to call incentives.

I'm for making college more affordable and easing the debt burden on students. The extents they went to here by both working the repayment obligation during and the forgiveness at the end are extreme and will do nothing to reduce the debt students incur. It will continue the cycle of rising college tuition.

 

[volinbham]

This is false. I have told you this twice and provided two links.

I just read your link and acknowledged that. It was one mistake on my part. Just as you mistook gross income and AGI. It happens.

 

[Vol423]

This plan would also continue to encourage students to pursue useless degrees that offer ZERO hope of ever repaying the student loans.

 

[RockyTop85]

1. Thanks for the clarification. It appears the principal will not increase.

2. I disagree with this assessment of glossing over or exaggerating the frequency. For starters the repayment minimums are drastically different and there is no penalty for not retiring any of the principle.

3. My point about borrowing caps is that many students do not borrow to the caps - this incentivizes them to do so. The average loan is considerably below the cap.

4. the last point first - getting buried under interest was never a large concern of mine as the loan is forgiven after a period of time. I stand corrected that the principal will not increase but even if the same % of borrowers pay the minimum as before we will increase the # of borrowers who've paid down none of their principal. there is virtually no incentive to pay down any principal (unless you think you can dispense it all in less than 20 years) since your payment is pegged to your income rather than the amount you owe. In my case I paid down early because my payments were already principal + interest minimums AND it was not going away. my minimum payments would never end if I didn't pay it faster. It was treated as a standard, installment loan.

5. the graduate schedule doesn't address the UG schedule which represents a much greater percentage of borrowers.

6. the recycling argument suggests we should give everyone these loans since it pays for itself by cycling back into the economy. if your argument is that this new approach isn't going to change the deficit then I'd like to see some calculations showing so.

7. when you sign loan agreements you are presented with information about how much you will have to pay monthly. 30 bucks a month vs 150 is pretty easy even for a 20 year old - when you then tell them that if they don't pay it off by the time they are 40 it magically goes away - well, these are what economists like to call incentives.

I'm for making college more affordable and easing the debt burden on students. The extents they went to hear by both working the repayment obligation during and the forgiveness at the end are extreme and will do nothing to reduce the debt students incur. It will continue the cycle of rising college tuition.

2: Forgiveness after 20-25 years of minimum payments is already a feature of the student loan program. It’s not new.

3-4 & 7: For the existing forgiveness feature to be abused more, significantly more, borrowers would have to either assume at the outset that their income will never allow them to repay more than if they pay responsibly, or to keep their income artificially low to keep their student interest payments down. This just seems like an unserious concern and I’d have to see that play out. The bigger problem that currently exists seems to be driven by the opposite mindset.

5: Verified twitter user stats quoted earlier say 60% of existing student loan debt would be subject to the higher repayment schedule. I’m sure nobody on this forum would be duped by liars on Twitter.

6 (strawmen all the way down): I explicitly said that revenues from the program would probably go down and that that seemed intentional because the whole point was to make the loans less predatory. Reduced drag on the economy would mitigate that, I don’t know how much. Keeping the borrower’s balance more within reach would also mitigate that. Again it seems impossible to say how much.

I also think I was clear that I think it’s an imperfect improvement, certainly from the perspective of the borrower. Doing away with compounding interest is unquestionably a smart move.

I think I’m on board with the criticism that the income based repayment caps are an overcorrection and that to the extent that this parade of horribles transpires it’s likely related to that number being too low. I’d be fine with some kind of formula, like how Social Security Disability calculates substantial earnings, to determine threshold incomes for higher repayment percentages. Adjusting it geographically also makes sense. Somebody making 85k living in New York City has less disposable income than somebody making the same in Tennessee, Alabama, or Mississippi. Even within the states, those levels would fluctuate a lot (see e.g. Nashville and Clarksville).

 

[FLVOL_79]

These people are insane
Randi Weingarten screams about student debt outside SCOTUS: ‘That is not fair!’

 

[SpaceCoastVol]

It's simple really. Pay your ****ing debts. Stop getting tattoos, quit smoking. Don't go to Dink's for dinner and overpriced alcohol. The VOLS are on broadcast TV most weekends. Buy a used car with cash, and cut up your credit cards until you don't owe on this crap anymore.

Stop whining.

 

[DC_Vol]

These people are insane
Randi Weingarten screams about student debt outside SCOTUS: ‘That is not fair!’

You gotta admit it’s funny though.

 

[volinbham]

You gotta admit it’s funny though.

another one of those "if (insert person) really believes what they are saying - they are insane" moments.