PSLF Proposed Cap of $57k - 2015 Budget

[LaughingMan]

Hey All,

Came across this Wall Street Journal article today. Halfway down I see this:

"Among the changes proposed Tuesday, individual borrowers would face new limits on how much debt that could have forgiven. The amount forgiven for public-sector workers would be capped at $57,500. Borrowers with debt loads above $57,500 would make payments for 25 years. And payments for married borrowers filing separately would be calculated on their combined household adjusted gross income."

Shoutout to gunnershow with a reddit post also providing some details and another link.

Gunner makes a good point that while this budget won't pass--some of this will still trickle through by other means.

Any experts can chime in?

Many of us have been expecting this change--if it's already being discussed now--I see the chances very slim of it being around in the future.

Edit: Here is the department of educations coverage direct link. As gunnershow mentioned--I am not seeing any mention of grandfathering in current individuals. I just briefly skimmed it though.

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Members don't see this ad.

 

[maxxor]

Looks like its right on time to avoid actually paying out for people who started in 2007 and expect forgiveness in 2017. Sounds like after SGR is repealed, people should start calling their congress critters about this next.

 

[Postictal Raiden]

What will happen after 25 years if the debt is not fully paid off? Forgiven? Make payments for an additional 5 years? or keep repaying until the amount is paid off or the borrower passes away?

 

[DrMidlife]

Good catch.

Looks like PAYE would be open to all now.

The specific forgiveness limit for PSLF is the aggregate undergrad borrowing limit (which is about $57k now).

 

[sjv]

Saw this yesterday, very interesting changes. Not law yet though, need to see what final form passes.

 

[secants]

Well I'm ****'ed.

 

[TheWeeIceMan]

If this is Obama's proposal, I'd imagine the House proposal will be even less favorable.

 

[TheWeeIceMan]

What will happen after 25 years if the debt is not fully paid off? Forgiven? Make payments for an additional 5 years? or keep repaying until the amount is paid off or the borrower passes away?

My understanding:

PSLF will forgive up to the 57k limit after 10 years. Anyone with loans over that limit will make payments for an additional 15 years and then have the balance forgiven (with a tax bomb, like PAYE)

PAYE changes from 20 years to 25 years.

This pretty much bones doctors, since we could count residency as part of the 10 year PSLF and then work a few years at a non-profit hospital to get complete forgiveness.

 

[sazerac]

Hahahaha well that would change everything. The doctor loophole (do a lengthy residency + fellowship, followed by the totally selfless "sacrifice" of working for a few years in, umm, a hospital) would get closed before anybody got to use it. Closing this loophole is probably the right thing to do.

I heard another proposed change would be eliminating the PAYE payment cap, which was the original 10-year standard repayment. Basically PAYE would require you to always pay 10% of your discretionary income as a loan payment. This is also probably the right thing to do. Comparing your current income versus what your loan payments would have been years ago when your loan was vastly different never really made much sense to me. It simply encouraged people to make ridiculously small loan payments when they were quite capable of paying more.

This proposed legislation would close a lot of loopholes and convert most of us to a repayment plan purely based on our current income, which seems only fair.

 

[Postictal Raiden]

Hahahaha well that would change everything. The doctor loophole (do a lengthy residency + fellowship, followed by the totally selfless "sacrifice" of working for a few years in, umm, a hospital) would get closed before anybody got to use it. Closing this loophole is probably the right thing to do.

I heard another proposed change would be eliminating the PAYE payment cap, which was the original 10-year standard repayment. Basically PAYE would require you to always pay 10% of your discretionary income as a loan payment. This is also probably the right thing to do. Comparing your current income versus what your loan payments would have been years ago when your loan was vastly different never really made much sense to me. It simply encouraged people to make ridiculously small loan payments when they were quite capable of paying more.

This proposed legislation would close a lot of loopholes and convert most of us to a repayment plan purely based on our current income, which seems only fair.

I agree with everything you said. Life has taught me that if something seems too good to be true, it does because it is too good to be true. Closing these loopholes is not only fair, in my opinion, but also more financially feasible.

 

[LaughingMan]

Eh---I agree it would be fair---but then that would lead me to question why undergrads get lower interest rates than medical students. I would venture to say that medical students are less of a risk than your typical psyc undergrad.

 

[EMDO2018]

Good catch.

Looks like PAYE would be open to all now.

The specific forgiveness limit for PSLF is the aggregate undergrad borrowing limit (which is about $57k now).

What do you mean open to all? Even if you took out loans before 2007?

 

[sazerac]

What do you mean open to all? Even if you took out loans before 2007?

Right. That is part of the proposal, to eliminate the 2007 rule. PAYE (10%, now for 25yrs) for everybody!

 

[Postictal Raiden]

Right. That is part of the proposal, to eliminate the 2007 rule. PAYE (10%, now for 25yrs) for everybody!

I'm wondering, though, what happens after 25 years with the remaining balance? Forgiven?

 

[sjv]

I'm wondering, though, what happens after 25 years with the remaining balance? Forgiven?

It is unclear, this is taken from EducatedRisk on reddit:

Obama's Budget Proposal is vague on this point (taxation on cancelled debt after 20/25 years on PAYE). The Official Budget Proposal (PDF) and Dept. of ED Budget (PDF) do not discuss changing the cancelled debt from IBR or PAYE (taxable income) to forgiven debt (non-taxable, like PSLF after ten years).

The only mention about this policy shift is in a Press Release (quoted below):

Provide tax relief to student loan borrowers by excluding student loan forgiveness from taxation for borrowers who have made student loan payments for many years under an income-related repayment plan. (Source[1]

In ED's 2015 proposal, it refers to PAYE cancellation after 20 years (or 25) as "forgiveness" but does not explicitly state that the law/regulation will change.

 

[PAYE1]

Man, I guess the idea of 6-figure loan forgiveness always was a pipe dream.

 

[DrMidlife]

Eh---I agree it would be fair---but then that would lead me to question why undergrads get lower interest rates than medical students. I would venture to say that medical students are less of a risk than your typical psyc undergrad.

The emphasis on undergrads is because there's actual evidence of socioeconomic advancement when a kid goes to college vs. doesn't go to college, and because there's actual evidence that debt avoidance keeps people from going to college at all.

Med students are not a problem Congress cares about. Compared to almost any other field, we have huge guaranteed incomes on the other side of our huge debt. Lawyers and teachers and researchers are expected to know that their job prospects are not as good as doctors and to take responsibility for their borrowing, so these fields are also not a problem Congress cares about. You'll notice that none of the budget language talks about the poor plight of med students because there is no such plight. Debt is inconvenient to doctors, not a barrier to socioeconomic advancement. Most doctors are in the top 25% of earners and nobody is going to pass laws to better the odds that we get to be in the top 1%.

Now, that said, over the next few years it's going to become clear that there are many med students graduating with $500k debt, and no barriers to lending that much money. This is an AAMC/AACOM/AMA/AOA/Dept of Ed problem and it's quite embarrassing.

 

[LaughingMan]

The emphasis on undergrads is because there's actual evidence of socioeconomic advancement when a kid goes to college vs. doesn't go to college, and because there's actual evidence that debt avoidance keeps people from going to college at all.

Perhaps. Article on Bloomberg today was discussing that in 2012, 44% of individuals with a bachelors degree were in a job that didn't need the degree. Emphasis shouldn't be on them if they don't even need the degree.

I mean I agree with all of you--it's just an inconvenience, but I am very interested in Pediatrics and a significant debt burden would influence my choice.

 

[Mad Jack]

This is mostly troubling in light of potential future decreases in physician income... The future has never been more uncertain, yet or debts explode with no way out in sight. Closing these loopholes is the fiscally responsible thing to do though.

 

[Silent Cool]

So basically people who were counting on PSLF now can't. PSLF was actually one of the programs I was counting on.

 

[rob554]

I've been in contact with the New America Foundation. The person who has been instrumental in getting these changes/ideas before the president and congress seems to think the PSLF changes in this proposal would only apply to new borrowers. I'm a little confused WHY he thinks that and don't really understand how they would implement it, but he seems fairly confident that if the details of this proposal were to actually one day become law, the PSLF cap would only apply to those borrowers who are taking out loans for the first time, basically a "grandfather clause."

 

[rob554]

Also, the PSLF program is included in the language of the Direct Loans master Promissory Note. While the language does include the word "may," it would seem like a big hurdle for lawmakers to ignore the fact that borrowers are presented with this option at the time of borrowing a loan.

http://www.direct.ed.gov/pubs/dlmpn.pdf

A public service loan forgiveness program is also
available. Under this program, the remaining balance due
on your eligible Direct Loan Program loans may be
cancelled after you have made 120 payments on those
loans (after October 1, 2007) under certain repayment
plans while you are employed in certain public service
jobs.
The Act may provide for certain loan forgiveness or
repayment benefits on your loans in addition to the
benefits described above. If other forgiveness or
repayment options become available, your servicer will
provide information about these benefits.
To request a loan discharge based on one of the
conditions described above (except for discharges due to
death or bankruptcy), you must complete an application
that you may obtain from your servicer

 

[rob554]

And finally, from student loan expert Heather Jarvis.

http://askheatherjarvis.com/blog/presidents-budget-unsettling-to-high-debt-student-loan-borrowers

It's not time to panic. The proposal limits reductions in benefits to "new borrowers" and recommends that existing borrowers have access to current program benefits for all loans used to finance their current degree programs. Moreover, the President's budget is a starting place for a long and bizaare political process that includes the usual Washington suspects. That means that nothing will happen soon.

She's on record many times saying any negative changes in terms that apply to people who have already taken out loans would be "unprecedented."

 

[secants]

Is there any timeframe of when this bill would go into affect, assuming it passes both houses and gets signed?

 

[rob554]

This proposal will not go into effect. The proposed budget from the president was basically dead on arrival before it was even drafted. However, it does set the White House's agenda and could shape legislative action in the future.

 

[Perrotfish]

And finally, from student loan expert Heather Jarvis.

http://askheatherjarvis.com/blog/presidents-budget-unsettling-to-high-debt-student-loan-borrowers

It's not time to panic. The proposal limits reductions in benefits to "new borrowers" and recommends that existing borrowers have access to current program benefits for all loans used to finance their current degree programs. Moreover, the President's budget is a starting place for a long and bizaare political process that includes the usual Washington suspects. That means that nothing will happen soon.

She's on record many times saying any negative changes in terms that apply to people who have already taken out loans would be "unprecedented."

Wow, I missed the part where married filing separately still need to pay student loan interest based on household income. That might be bigger than the loss of PSLF.

Also I don't see how this is unprescedented. They changed the terms of my classes loans on us TWICE during the period when we were in medical school (changed the interest rate, then eliminated subsidized gad loans), and there was no attempt to grandfather in anyone who was already half way through and couldn't possibly quit. And that was how they treated people who borrowed in good faith, while this is stopping people from exploiting a law that I think we all know wasn't meant to erase medical student debt.

 

[rob554]

Those are my thoughts as well but people who are better versed in this process seem to think it would only apply to new borrowers.

I guess we'll just have to wait and see if and when congress takes something like this up and the language they use.

 

[sazerac]

Those are my thoughts as well but people who are better versed in this process seem to think it would only apply to new borrowers.

I guess we'll just have to wait and see if and when congress takes something like this up and the language they use.

What I find interesting is that every time there is a gain in benefits (like the PAYE program), the gain only applied to "new borrowers". If you took out even one loan in the past, you were forever prohibited from participating in the new program.

However, now we are presented with a loss of benefits, and this loss (as currently proposed) only applies to "new borrowers". I wonder if it would make financial sense to take out a quick student loan now, even if you don't really need one currently, just to be grandfathered in as an old borrower and therefore qualify for the old benefits like unlimited PSLF?

This is all just idle speculation, of course, since the law hasn't been modified yet.

 

[rob554]

Honestly, I think any proposal that makes it to congress will be significantly different so speculating at this point on what will become law is probably pointless. Taking out an extra student loan now seems like a drastic step...

 

[theshellyb]

They changed the terms of my classes loans on us TWICE during the period when we were in medical school (changed the interest rate, then eliminated subsidized gad loans), and there was no attempt to grandfather in anyone who was already half way through and couldn't possibly quit.

Not exactly the same situation. They changed the terms on all FUTURE loans you took out but they didn't go back and eliminate the subsidies/ raise the interest rate for the loans you already have. The fact that the PSLF terms are written in the MPN of the loans we already have may help.

 

[gunnershow]

Not exactly the same situation. They changed the terms on all FUTURE loans you took out but they didn't go back and eliminate the subsidies/ raise the interest rate for the loans you already have. The fact that the PSLF terms are written in the MPN of the loans we already have may help.

Have you read the MPN, though? Note the bolded...

• "A public service loan forgiveness program is also available. Under this program, the remaining balance due on your eligible Direct Loan Program loans may be cancelled after you have made 120 payments on those loans (after October 1, 2007) under certain repayment plans while you are employed in certain public service jobs."

In short, PSLF is done here.

 

[Euthymia]

Have you read the MPN, though? Note the bolded...

• "A public service loan forgiveness program is also available. Under this program, the remaining balance due on your eligible Direct Loan Program loans may be cancelled after you have made 120 payments on those loans (after October 1, 2007) under certain repayment plans while you are employed in certain public service jobs."

In short, PSLF is done here.

I saw on another forum someone posted the wording of his consolidated loan promissory note:

A Public Service Loan Forgiveness program is available that provides for the cancellation of the remaining balance due on your eligible Direct Loan Program loans after you have made 120 full, on-time, scheduled monthly payments (after October 1, 2007) on those loans under certain repayment plans while you are employed full-time by certain public service organizations.

There's no ambiguity there.

 

[Scorcher31]

I feel that PLSF will eventually be changed or capped. My understanding is that it was meant for teachers, social workers and other lower paying fields. If you look through the boards, you will see many posting that they are planning on "taking out as much money as possible" and live it up or invest because it will all be forgiven. This is a very entitled mentality and will lead to nothing but poor budgeting and financial hardship in the long run. Always know exactly what you are taking out, live cheaply and never take out more than you feel you could pay back.

With all of this said no one knows what's going to happen with public service loan forgiveness in he future. It may very well exist or people may be grandfathered in, but it's too risky for me personally to count on.

 

[Perrotfish]

I gotta say, I'm kind of hoping this passes. My spouse and I have made a LOT of sacrifices to actually pay down the student loans because we weren't sure if PSLF was going to be there. I would have really felt like an ass if I had skipped multiple years of meals out, new-ish cars, and good housing for no reason. Also more generally I don't really feel like paying even higher taxes to support someone else's student loan loophole.

 

[Postictal Raiden]

I gotta say, I'm kind of hoping this passes. My spouse and I have made a LOT of sacrifices to actually pay down the student loans because we weren't sure if PSLF was going to be there. I would have really felt like an ass if I had skipped multiple years of meals out, new-ish cars, and good housing for no reason. Also more generally I don't really feel like paying even higher taxes to support someone else's student loan loophole.

If it passes, it will only affect those who borrow their first loans in 2015. Most of today's med students and premeds have already taken out some loans at this point. Sorry, but you will still pay taxes to subsidize someone else's loans.

That said, I think the income-based repayment and forgiveness things is stupid. Just lower the interests rates to that of inflation levels (2-3%) and have everyone repay his/her entire debt.

 

[TheWeeIceMan]

"Students who borrowed their first loans prior to July 1, 2015, would continue to be able to select among the
existing repayment plans (for plans for which they now qualify and for loans originated through
their current course of study), in addition to the modified PAYE."

Okay, so I know a lot of people are using some variation of the quoted to say that PSLF would still be available to those who have already taken out loans. However, PSLF isn't a repayment plan, so I don't see how it will be assumed to continue for old borrowers. What it does imply is that IBR, old PAYE, and ICR will still be available for those with loans before 2015.

Am I missing something that says that unlimited PSLF must still be available for us?

 

[Postictal Raiden]

"Students who borrowed their first loans prior to July 1, 2015, would continue to be able to select among the
existing repayment plans (for plans for which they now qualify and for loans originated through
their current course of study), in addition to the modified PAYE."

Okay, so I know a lot of people are using some variation of the quoted to say that PSLF would still be available to those who have already taken out loans. However, PSLF isn't a repayment plan, so I don't see how it will be assumed to continue for old borrowers. What it does imply is that IBR, old PAYE, and ICR will still be available for those with loans before 2015.

Am I missing something that says that unlimited PSLF must still be available for us?

You are maybe right, but if that's the case then why make such a statement in the first place? The only real change that is happening is the elimination of the forgiveness after 10 years under PSLF and 20 years under PAYE/IBR. However, there's no explicit statement of what will happen to the remaining balance after 25 years, so it must be assumed it will be forgiven.

 

[TheWeeIceMan]

You are maybe right, but if that's the case then why make such a statement in the first place? The only real change that is happening is the elimination of the forgiveness after 10 years under PSLF and 20 years under PAYE/IBR. However, there's no explicit statement of what will happen to the remaining balance after 25 years, so it must be assumed it will be forgiven.

Yeah, I'm not really sure. Everyone is trying to disect the language in the proposal, but who really knows at this point. I've heard multiple people say that the proposal includes forgiveness and elimination of the tax bomb for PAYE, which would be pretty huge.

 

[sazerac]

I wonder if full forgiveness will keep getting postponed in 5 and 10 year increments, and basically our student loans will be carried (like a 10% income tax) until we die?

With the proposed genuine income-based repayments, there seems very little real reason to forgive student loans anymore. The borrower really did borrow the money. The monthly repayment amounts will never be onerous since they are pegged at 10% of discretionary income. Why forgive at all?

 

[cbtk18]

Subscribed

 

[cbtk18]

This is BS, I took out my loans in assuming I could rely on PSLF and honestly night not have gone to med school without it. If they had interest rates at reasonable levels, I wouldn't care as much, but at 7+%? This is devastating.

 

[Postictal Raiden]

I wonder if full forgiveness will keep getting postponed in 5 and 10 year increments, and basically our student loans will be carried (like a 10% income tax) until we die?

With the proposed genuine income-based repayments, there seems very little real reason to forgive student loans anymore. The borrower really did borrow the money. The monthly repayment amounts will never be onerous since they are pegged at 10% of discretionary income. Why forgive at all?

I think, given sufficient time, the loans will eventually be repaid. As years go by, salaries increase to adjust for inflation, and this in turn will make the 10% amount large enough to pay the accrued interests and make a dent in the principle amount.

 

[TooMuchResearch]

I think, given sufficient time, the loans will eventually be repaid. As years go by, salaries increase to adjust for inflation, and this in turn will make the 10% amount large enough to pay the accrued interests and make a dent in the principle amount.

Physician earnings need not, and often do not, increase to match inflation.

 

[Postictal Raiden]

Physician earnings need not, and often do not, increase to match inflation.

Source, please?

I have many sources that show otherwise

 

[TooMuchResearch]

Source, please?

I have many sources that show otherwise

Google medicare reimbursement vs inflation.

 

[sazerac]

I think, given sufficient time, the loans will eventually be repaid. As years go by, salaries increase to adjust for inflation, and this in turn will make the 10% amount large enough to pay the accrued interests and make a dent in the principle amount.

I respectfully disagree. The loans are at an interest rate above inflation. If you can't pay down principle at 10% as an attending (and many can't) then the loan will get bigger every year, even though our salaries will creep up.

If you make $250K, and your loans are $400K, you are only making about $20K in payments, and the principle is growing faster than your annual raise.

There is a significant subset of large loans that will never be paid off because the payments aren't being made.

It is interesting to speculate what the end game will be here. The government wants its money. I anticipate a Student Loan Recovery Tax- when your loan is discharged upon death, there is a special tax applied to your estate that happens to be 100% of your (forgiven) remaining student loan.

 

[ortho11111]

I don't actually have any problem with the PSLF cap, as it's the fiscally responsible thing to do, we should pay back our debt and discourage "to infinity and beyond" expenditures. However, for PAYE/IBR to be sound public policy, it needs to have lower interest rates. Under the current proposed 2015 PAYE plan, the government is actually going to have to "forgive" MORE debt at the end of 25 years than at the end of the 10-year PLSF program, because of accrued interest at 6.8-8.4% (doubling the principal every decade). That's absurd. It's also a huge debt bomb that never gets smaller for the people who are in this program, bringing a world of hurt for those people when applying for mortgages or car loans over the next 25 years (debt load is part of these applications). I know doctors are into this delayed gratification thing, but delayed till death is a bit too much. And if say at the end of 25 years, our government's budget remains broke, it could very well renege again on full debt forgiveness, and that would be morally reprehensible if during that time the principal for those relying on debt forgiveness had doubled under this government-sanctioned payment plan at 6.8-8.4% interest.

The question is why do we still need interest rates (other than a minimum service rate) if at the end of 25 years it's all going to be forgiven anyway and everyone is paying an income-based payment? You've basically precluded default risk. And what kind of f*cked up public policy actually wants to encourage people to never pay off their ballooning debt? or impose a marriage penalty in the hundreds of thousands of dollars? By having the huge interest rates, the federal government is only going to find itself with large paper write-offs of forgiven loans 25 years from now. There's a high likelihood there will be political opportunists then who will scream at "how much windfall" doctors are getting, even though most of it is because of artificially high interest rates charged by the federal government (even as its Federal Reserve charges banks a near zero discount rate).

 

[Poeppel]

Has anyone here re-applied to the IBR and/or PAYE over a number of years, and also tried to track their PSLF payments, and done so successfully? My experience with Sallie Mae (one prior year on IBR and starting a year on PAYE) has been that those *****s take every opportunity they possibly can to process the application incorrectly, or to process payments incorrectly. I can list the errors if anyone is interested, but a fair summary is that Sallie Mae makes mistakes about 75% of the time I communicate with them. Eventually the errors get resolved, but only after several weeks and after I've spent 5-10 solid hours (per incident) of phone time with their representatives, during normal business hours. They seem to have neither the inclination nor the ability to perform their job as the federal government guidelines specify.

Thus, functionally, the PSLF program is defunct. It may exist according to government publications, but even trying to participate in it and document one's participation seems to be more trouble than it's worth. After 10 long years of fighting with Sallie Mae each year (probably more like 13 years owing to errors they make recording payments made in an eligible repayment plan), I can only imagine what a nightmare it would be to apply for forgiveness and achieve discharge of the debt. Probably the first response will be along the lines of, "What do you mean, what is this foregiveness program of which you speak???"

If my experience is any indication, someone planning to get PSLF at the end of ten years had better budget in an extra $20k to pay a lawyer over several uncertain years, because that is what it will take in practice. A court will have to rule the debt forgiven in accordance with the original federal guidelines, because all other involved parties will never willingly acknowledge that the terms have been satisfied and the debt is forgiven.

 

[SteveSmithRadiology]

The question is why do we still need interest rates (other than a minimum service rate) if at the end of 25 years it's all going to be forgiven anyway and everyone is paying an income-based payment?

Because under IRB I would have paid off my loan after 17 years.Fewer than the 25 before PSLF would have been triggered.

 

[rob554]

Has anyone here re-applied to the IBR and/or PAYE over a number of years, and also tried to track their PSLF payments, and done so successfully? My experience with Sallie Mae (one prior year on IBR and starting a year on PAYE) has been that those *****s take every opportunity they possibly can to process the application incorrectly, or to process payments incorrectly. I can list the errors if anyone is interested, but a fair summary is that Sallie Mae makes mistakes about 75% of the time I communicate with them. Eventually the errors get resolved, but only after several weeks and after I've spent 5-10 solid hours (per incident) of phone time with their representatives, during normal business hours. They seem to have neither the inclination nor the ability to perform their job as the federal government guidelines specify.

Thus, functionally, the PSLF program is defunct. It may exist according to government publications, but even trying to participate in it and document one's participation seems to be more trouble than it's worth. After 10 long years of fighting with Sallie Mae each year (probably more like 13 years owing to errors they make recording payments made in an eligible repayment plan), I can only imagine what a nightmare it would be to apply for forgiveness and achieve discharge of the debt. Probably the first response will be along the lines of, "What do you mean, what is this foregiveness program of which you speak???"

If my experience is any indication, someone planning to get PSLF at the end of ten years had better budget in an extra $20k to pay a lawyer over several uncertain years, because that is what it will take in practice. A court will have to rule the debt forgiven in accordance with the original federal guidelines, because all other involved parties will never willingly acknowledge that the terms have been satisfied and the debt is forgiven.

I've actually been quite satisfied with the PSLF tracking process through Fed Loan Servicing. They've been on top of almost everything and have pretty helpful customer service.