President signing executive order that lets borrowers pay no >10% of their monthly income on loans

[GreyF0X]

How do you think this will affect future and current medical students?


"WASHINGTON (AP) -- President Barack Obama is signing an executive order that lets borrowers pay no more than 10 percent of their monthly income in student loan payments.

The measure expands on a 2010 law that covered those who started borrowing after October 2007 and kept borrowing after October 2011. The executive order allows those who borrowed earlier to participate, potentially extending the benefit to millions more borrowers.

Obama will sign the order Monday during an event in the White House Rose Garden. The president will also use the appearance to call for Congress to pass more sweeping legislation that would let college graduates with heavy debts refinance their loans.

The Senate is expected to debate the legislation next week, but it faces significant obstacles."


Source: http://hosted.ap.org/dynamic/storie...ME&TEMPLATE=DEFAULT&CTIME=2014-06-09-08-19-11

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[user3]

I don't get why PAYE wasn't offered to all borrowers to begin with. And the refinancing bill will help some people marginally, but for the most part future students will not benefit because interest rates are projected to rise in coming years...I feel like they are just using that overrated refinance bill so as to sneak in yet another tax for high earners.

 

[freaker]

I don't know where he thinks he has the authority to do this. It clearly would take an act of Congress to authorize changes to a spending bill. All this dinkering around with the federal loan programs makes me somewhat anxious. Borrowers really can't depend on the system staying even remotely stable, and it thus becomes a bit more difficult to develop a strategy to manage repayment. We keep getting told that it would take an act of Congress to change the terms of the PSLF program, but if we have a president who just pretends he can do whatever he wants, well, who knows?

As for the question as to how this order affects current or future medical students, it won't affect them except in some rare cases with non-traditional students with college loans they took about before 2007. All this order does is address debt that has already been created. If it does anything, it adds to the costs of student loans and makes it more likely that more drastic measure are taken down the road to control costs to the federal government--if those even matter, anymore.

 

[RangerBob]

I agree that this adds the all the uncertainty with regards to PSLF. It's best to assume PSLF won't be around in any form. What we can do is focus on how we can benefit now--this PAYE extension helps a lot of people now. I think at least half the residents I know are not eligible for PAYE because they had at least one loan before the deadline. If you're lucky and didn't have any undergrad/post-bac debt and/or started medical school later then the extension makes no difference, but it definitely helps people like me who still have a few years of residency left (and can benefit a lot from that extra 1-2K/year in savings with PAYE vs IBR).

But I think for attendings this extension is pretty worthless--as mentioned, there's no reason to have any confidence in PSLF sticking around, and who knows where loan forgiveness through IBR/PAYE will go. I'd guess it'll stick around since you get taxed on the amount forgiven, but imagine how big a hole you'd be in if you pay the minimum with the expectation to benefit and then the government caps the amount that can be forgiven. I think there are very few exceptions to the statement that attendings should be paying far more than the IBR/PAYE amount to pay off loans as quick as possible.

With all the uncertainty in students loans, it's best to just take advantage of what benefits you can that are available now (ie., income-driven repayment plans while in residency, government picking up the unpaid interest on subsidized loans for the first three years of IBR/PAYE, etc. etc.) If we're REALLY lucky, Senator Warren's bill allowing us to refinance at a lower rate will pass in some form and that would save us a lot of money of the life of our loans. I'd take that anyday over loan forgiveness.

 

[Postictal Raiden]

Get rid of all forgiveness programs and drop the loan interest rates to a value similar to that of inflation (3-4%).

 

[deleted480308]

it's just going to raise tuition...

 

[happypremed1]

Get rid of all forgiveness programs and drop the loan interest rates to a value similar to that of inflation (3-4%).

YES! THIS! This solves a lot of problems. Over a period of 100 yrs, the average inflation rate is 3%. Student loan should be set at 4-5% or 1% above inflation rate. The government is borrowing very cheaply at a rate ~2% for a long time now, so there's no reason to set current direct and PLUS loan at 6.8% and 7.9% respectively. These interest rates are just insane and unreasonable--they are ruthless for the students who take out a large amount of loans for professional study.

 

[happypremed1]

Does anyone know how long does it take to apply for PAYE after graduating from medical school?
I'm graduating in 2018 and expecting to borrow about 250k in tuition and living expenses. The interest will accumulate to about 33k at the end of med school. After med school, we have a 6-month grace period before the interest starts to capitalize, right? If so, if we qualify for PAYE during the grace period, does this 33k in interest gets capitalized? I hope the interest will just accrue on the 250k alone throughout residency.
After settling down on my job after residency, I will most likely refinance my loan to a more reasonable interest rate and pay it off ASAP within 5 years.

 

[RangerBob]

Does anyone know how long does it take to apply for PAYE after graduating from medical school?
I'm graduating in 2018 and expecting to borrow about 250k in tuition and living expenses. The interest will accumulate to about 33k at the end of med school. After med school, we have a 6-month grace period before the interest starts to capitalize, right? If so, if we qualify for PAYE during the grace period, does this 33k in interest gets capitalized? I hope the interest will just accrue on the 250k alone throughout residency.
After settling down on my job after residency, I will most likely refinance my loan to a more reasonable interest rate and pay it off ASAP within 5 years.

It will capitalize Unfortunately interest capitalizes upon starting repayment (at the end of your grace period), but then if you enter IBR/PAYE, then your interest does not capitalize again until you leave the program (which can happen if you forget to reapply on time). So whatever interest you accumulate during residency just stays "in limbo," plus the government will pay your unpaid interest on subsidized loans (if you happen to have any) for three years.

 

[user3]

why not just forgive the balance right away in exchange for giving up 10% of your salary for the following 20 years (with the option to "buy out" at any time by paying whatever your non-forgiven balance would have grown to)?

This is essentially what PAYE already offers, except it forces one to wait 20 years to hopefully see the forgiveness. For most people this would allow them to repay the forgiven balance and then some. And I don't see how the state wouldn't love to seize 10% of "overpaid" physicians' salaries for 20 years apiece.

 

[Lesley]

http://www.tuition.io/student-loan-...x-impact-of-taxable-student-loan-forgiveness/

 

[happypremed1]

It will capitalize Unfortunately interest capitalizes upon starting repayment (at the end of your grace period), but then if you enter IBR/PAYE, then your interest does not capitalize again until you leave the program (which can happen if you forget to reapply on time). So whatever interest you accumulate during residency just stays "in limbo," plus the government will pay your unpaid interest on subsidized loans (if you happen to have any) for three years.

Thank you for the information.

 

[freaker]

it's just going to raise tuition...

Which is one reason why I'm generally not a fan of the government being involved in the student loan business at all.

That said, if it's going to be involved, I'd love to see the federal government refuse to offer federal aid to schools that increase tuition and fee rates beyond the rate of inflation or maybe 0.25% above it. That would curtail a lot of this nonsense over unending tuition rate hikes, which is at the heart of the student loan debt fiasco.

 

[futuredoctor10]

With all the uncertainty in students loans, it's best to just take advantage of what benefits you can that are available now (ie., income-driven repayment plans while in residency, government picking up the unpaid interest on subsidized loans for the first three years of IBR/PAYE, etc. etc.)

If you are in an income-driven repayment plan AND have consolidated your loans (in order to be PSLF-eligible), does the government still pick up unpaid interest on subsidized loans for the first 3 years of IBR/PAYE? I am not sure how consolidating changes the type of loan (what do the subsidized + unsubsidized become)?

 

[RangerBob]

If you are in an income-driven repayment plan AND have consolidated your loans (in order to be PSLF-eligible), does the government still pick up unpaid interest on subsidized loans for the first 3 years of IBR/PAYE? I am not sure how consolidating changes the type of loan (what do the subsidized + unsubsidized become)?

When you consolidate you loans (as I just did for my FFELP loans), the subsidized and unsubsidized loans are separated out. Per the Dept. of Education, technically it's one loan, at one rate. But your lender will display them as two separate loans online (a subsidized and an unsubsidized consolidation loan), so for all intents and purposes you can sort of consider them separate loans. (But they're really just one loan!)

So, the subsidized loans you had stay subsidized, though now they are are a different rate (likely higher if you had any GradPlus loans, which will pull up the weighted average).

From what I have told and per the Dept of Education website, they will cover the unpaid interest on any subsidized loans for those first three years. I delayed repayment a few months because I wanted to start repayment at the same time for all my loans and FedLoan has sort of been botching the consolidation process, but I'll be watching my interest over the next few months to make sure:
1) the unpaid subsidized interest gets paid by Uncle Sam, and
2) that none of the interest capitalizes (one of the best benefits of IBR/PAYE). Unfortunately, my monthly statement doesn't say "the government paid x amount of your interest this month" so you sort of have to track it on your own (at least with FedLoan--maybe other servicers spell it out for you).

Just to clarify--you don't have to consolidate your loans to be PSLF-eligible, unless like me you have some FFELP loans. My first year of medical school I was given all FFELP loans, so I consolidated only those loans so they could become a direct consolidation loan. My other three years all my loans were direct loans, so there was no benefit to consolidating (since I have GradPlus loans, I want to keep those separate so I can selectively pay off higher-interest loans first, once I'm able to do so).

Remember: only direct loans are eligible for forgiveness via PSLF, and only direct loans are eligible for PAYE (at least in the past--I don't know about going forward with the new executive order, but I don't think that will kick in until around December)

 

[EMDO2018]

Whats the status on the bill???

 

[Throwaway!]

Sorry if this ends up being a dumb question, but how would this mandate be any different from IBR? I also just don't see how this executive order can be a good thing for borrowers looking to make monthly payments higher than 10% income to more aggressively tackle their debt.


EDIT: Ok I read a little bit more about it and understand it a bit better now. This just basically expands eligibility to students who previously didn't qualify for repayment programs like PAYE.

 

[Lesley]

http://www.cnbc.com/id/101809706?__...yahoo&doc=101809706|Student loan forgiveness#.

A more recent article. The article doesn't mention loan forgiveness is taxable, but it does mention that Obama's proposal earlier this year which could potentially cap student loan forgiveness for public service workers at $57,000. Any debt beyond that amount would have a 25 year payback.