PSLF Proposed Cap of $57k - 2015 Budget

[cbtk18]

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.

Yes, their customer service is surprisingly pretty solid.

Anyone have any recent updates on the proposed changes? I really don't want PSLF to go away.

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[rob554]

Yes, their customer service is surprisingly pretty solid.

Anyone have any recent updates on the proposed changes? I really don't want PSLF to go away.

Nothing right now. Congress won't take up this budget. But they may introduce separate student loan legislation that includes some of these recommendations.

The lobbyist with the New America foundation who basically scripted all of these changes seems fairly confident they will only apply to new borrowers, including any cap on PSLF.

However, I'm still skeptical.

It's going to be a waiting game.

 

[rob554]

UPDATE: The department of education seems to suggest that under the president's budget proposal, the PSLF cap would only apply to new borrowers.

http://educatedrisk.org/analysis/of...ed-budget-pslf-caps-paye-benefits-limitations

While the language in the response is a bit vague, the ed department seems to say the PSLF "cap" would only apply if existing borrowers switch from their current IBR plan to the new, extended PAYE plan. The author of this article plans to clarify the statement from the department of education, including the reference to "with minor exceptions."

1) Will the Proposed PSLF cap ($57,500) only apply to New Borrowers after July 1, 2015 (and those who opt into the new program)? Or to all borrowers? Or all borrowers that use PAYE as a repayment plan (see question #2 for clarification)?
This has been an issue of great concern for current borrowers and official clarification would be helpful. See [AskHeatherJarvis] [Boston Student Loan Lawyer Adam Minsky] and Comments in [New America Foundation]. Also, PSLF is a separate statute from PAYE, so how would ED/Congress change PSLF to only effect future PAYE borrowers? Would it create a new time period for PSLF or create new language in the PAYE program for a new PSLF program? If the PSLF statute (20 USC 1087e(m)) is changed to include the cap (without clarification), then it would appear to apply to all borrowers. Any guidance on this would help.

ED's Answer: For all new borrowers (with minor exceptions) starting with the 2015-2016 academic year the new expanded PAYE program will be the only income-based repayment plan available so the cap applies. For any other existing borrowers they retain the income-based repayment plan in their promissory note but if they choose to switch to the new expanded PAYE program, they have to accept all the conditions including the caps.

 

[rob554]

Bottom line, it SOUNDS like people who are currently paying under IBR would be able to get their entire loan discharged under PSLF provided they don't switch to the new PAYE plan.

So you'd still be paying 15% instead of 10%, but full forgiveness would still apply at 10 years.

Again, not completely clear...

 

[sazerac]

PSLF is going to be the new proverbial "2.1% student loan" of yore. Us old timers will get full PSLF benefits and think loans are something that only happens for a couple years out of residency. Meanwhile today's hSDN members (and current financially prudent loanless undergrads) are gonna get reamed.

 

[Dumpstarrian]

-

 

[Postictal Raiden]

From reading the article, it seems to me that new borrowers have an advantage over us, old timers, and that is the accrued interests during repayment are capped at 50% of unpaid interests.

 

[ortho11111]

From reading the article, it seems to me that new borrowers have an advantage over us, old timers, and that is the accrued interests during repayment are capped at 50% of unpaid interests.

It's not as big of an advantage as you might think.

Your monthly interest accrued is about $1100 for a $200k loan at 6.8%. Say you enroll in the new PAYE, and pay 10% of your resident income per month: $350. All of that goes into accrued interest. You still have $750 of unpaid interest. If they cap 50% of that, they're giving you a discount of $375. You might think, wow, the federal govt is almost matching your payment. But you have to realize this is the best case scenario. Even then you have an effective interest rate of about 5%. Your principal is still increasing.

If you get married to someone making $60k a year. Then your monthly payment doubles to $800 a month. Now your unpaid interest is suddenly a mere $300. Government discounts 50% or just $150 of that. Now you have an effective interest rate of 6.1%.

Once you finish residency, you'll likely always pay more than your accrued interest, so it doesn't even matter.

For that little perk,
They've removed the IBR payment monthly cap (used to be capped at ~$2500 standard payment max per month).
They've extended PAYE to 25 years from 20 years
They've gotten rid of "married filing separately" loophole
They've capped PSLF to $57k

 

[cbtk18]

So I'm currently in PAYE. I'm I screwed and will be subject to the cap? Or is the "new PAYE" something different that will start in 2015-2016?

 

[sazerac]

So I'm currently in PAYE. I'm I screwed and will be subject to the cap? Or is the "new PAYE" something different that will start in 2015-2016?

Everybody agrees that you would still be able to use the old system.

The more interesting question is, if I have at least one pre-2015 loan, will all my future loans also qualify for the old PAYE+PSLF system?

 

[Perrotfish]

So I'm currently in PAYE. I'm I screwed and will be subject to the cap? Or is the "new PAYE" something different that will start in 2015-2016?

There is no legislation yet to guide that answer, just a proposed budget that may or may not pass, which is deliberately unclear on that point and in any event almost definitely won't pass in its current form. There won't be an answer to your question until 2015.

 

[naus]

My wife and I are both residents. We decided to not game the system and just pay the standard 10-year payment. We had $240,000 of debt combined, so that's a $2700 monthly payment.
We have about $6600 per month after taxes. After paying off loans, that leaves about $3900 for all other expenses, including rent/mortgage.

The trick to paying off loans during residency is to do residency at a very low cost area and have a super low mortgage. Our house is $140,000, so our monthly payment is about $650. We also get some tax benefit from the mortgage interest deduction which covers property tax. Since we live in a super cheap area, this house is actually not a rat hole. We also have two old but reliable Japanese cars since our college days, no car payments left.

It's doable. Not fun, but doable.

The older I get, the more I realize how good the Boomers had it (homes under $120k throughout the country, little to no educational debt, and salaries not much lower than today), and how much they have squandered our national wealth.

 

[Postictal Raiden]

My wife and I are both residents. We decided to not game the system and just pay the standard 10-year payment. We had $240,000 of debt combined, so that's a $2700 monthly payment.
We have about $6600 per month after taxes. After paying off loans, that leaves about $3900 for all other expenses, including rent/mortgage.

The trick to paying off loans during residency is to do residency at a very low cost area and have a super low mortgage. Our house is $140,000, so our monthly payment is about $650. We also get some tax benefit from the mortgage interest deduction which covers property tax. Since we live in a super cheap area, this house is actually not a rat hole. We also have two old but reliable Japanese cars since our college days, no car payments left.

It's doable. Not fun, but doable.

The older I get, the more I realize how good the Boomers had it (homes under $120k throughout the country, little to no educational debt, and salaries not much lower than today), and how much they have squandered our national wealth.

Of course it's doable for you. You are a freaking neurosurgeon. You are looking at making at least twice your total debt your first year out of residency.

 

[naus]

Of course it's doable for you. You are a freaking neurosurgeon. You are looking at making at least twice your total debt your first year out of residency.

And whoosh the point goes above your head.

 

[Postictal Raiden]

And whoosh the point goes above your head.

I admit that my response had nothing to do with your post, but my point was that your total debt is lower than that of many future medical grads. I, for example, am looking at a total debt that is twice as much as yours. Doing the 10-year repayment plan while I'm in residency is going to be impossible. Furthermore, during residency my debt due to the accruing interests will keep growing making it very hard for me to do the standard repayment plan afterward. Therefore, I'm forced to engage in these governmental repayment plans.

 

[LaughingMan]

The older I get, the more I realize how good the Boomers had it (homes under $120k throughout the country, little to no educational debt, and salaries not much lower than today), and how much they have squandered our national wealth.

Yeah there "I got mine--screw you" attitude is insane.

They are the cause of many ailments in this nation.

 

[RangerBob]

The older I get, the more I realize how good the Boomers had it (homes under $120k throughout the country, little to no educational debt, and salaries not much lower than today), and how much they have squandered our national wealth.

I don't completely disagree with you, but at the same time, how many boomers actually were able to go to college? Nowhere near the same percentage as our generation. And how many boomers had as stable lives (financially speaking) growing up as children? Think about Detroit, the loss of middle-class manufacturing jobs--that hit hard in the 70's. I think we had it far better--most of our generation has been able to go to college if we wanted to go, and a much higher percentage got that education funded by the boomers, compared with the number of boomers whose education was funded for them. Yes, I'm jealous that my father was able to work a summer job and then TA during the school year and that paid his entire way through college and graduated without debt, and that such a thing is now impossible unless you go to a community college--but I'm still thankful for the situation I'm in.

It's unfortunate our tuition is so high, and it's unfortunate that we will owe so much money. But that's partially the life we inherited and partially the life we chose. True, many boomers overall have/had a better quality of life on average, whatever that means, than our generation will have, but we've benefited immensely from their success, and we will have a far better quality of life than any other generation except possibly theirs. And our chapter is still being written--it's not like they didn't encounter huge social upheavals, wars, stagnating economies, etc., throughout their lives. We will still be wealthier than they were--we just likely won't see our standard of living improve as much during our lives, on average, compared to the boomers.

If all we do is compare what we have to others then we'll never be happy--we just have to ask are we content with how our lives are right now, and what can we do to make life better for ourselves and for those ahead of us? It doesn't do anyone any good to blame the prior generation. Let's just pay it forward as best we can. Unfortunately a democracy doesn't think far ahead enough to do that, so it's up to us to not get sucked into the "me me me" game. Let's think about others--that's what our profession calls us to do, and I'm a firm believer that while even if we have a better standard of living than just about the entire world, we will never be as happy as them unless we accept the things we cannot change and change the things we can. While I try not to, I am guilty myself of often complaining about how much I owe and how little take-home pay I will have after taxes/loan payments. But then I remind myself I knew what I was getting into, and it's still worth it. We have a very rewarding job, and I won't let anxiety of my debt take away the pride I feel for my profession or diminish the meaning of the oath we took at graduation.

 

[TooMuchResearch]

I don't completely disagree with you, but at the same time, how many boomers actually were able to go to college? Nowhere near the same percentage as our generation. And how many boomers had as stable lives (financially speaking) growing up as children? Think about Detroit, the loss of middle-class manufacturing jobs--that hit hard in the 70's. I think we had it far better--most of our generation has been able to go to college if we wanted to go, and a much higher percentage got that education funded by the boomers, compared with the number of boomers whose education was funded for them. Yes, I'm jealous that my father was able to work a summer job and then TA during the school year and that paid his entire way through college and graduated without debt, and that such a thing is now impossible unless you go to a community college--but I'm still thankful for the situation I'm in.

It's unfortunate our tuition is so high, and it's unfortunate that we will owe so much money. But that's partially the life we inherited and partially the life we chose. True, many boomers overall have/had a better quality of life on average, whatever that means, than our generation will have, but we've benefited immensely from their success, and we will have a far better quality of life than any other generation except possibly theirs. And our chapter is still being written--it's not like they didn't encounter huge social upheavals, wars, stagnating economies, etc., throughout their lives. We will still be wealthier than they were--we just likely won't see our standard of living improve as much during our lives, on average, compared to the boomers.

If all we do is compare what we have to others then we'll never be happy--we just have to ask are we content with how our lives are right now, and what can we do to make life better for ourselves and for those ahead of us? It doesn't do anyone any good to blame the prior generation. Let's just pay it forward as best we can. Unfortunately a democracy doesn't think far ahead enough to do that, so it's up to us to not get sucked into the "me me me" game. Let's think about others--that's what our profession calls us to do, and I'm a firm believer that while even if we have a better standard of living than just about the entire world, we will never be as happy as them unless we accept the things we cannot change and change the things we can. While I try not to, I am guilty myself of often complaining about how much I owe and how little take-home pay I will have after taxes/loan payments. But then I remind myself I knew what I was getting into, and it's still worth it. We have a very rewarding job, and I won't let anxiety of my debt take away the pride I feel for my profession or diminish the meaning of the oath we took at graduation.

How many people attending college now actually need a college education to accomplish their wage earning duties?

 

[TooMuchResearch]

My wife and I are both residents. We decided to not game the system and just pay the standard 10-year payment. We had $240,000 of debt combined, so that's a $2700 monthly payment.
We have about $6600 per month after taxes. After paying off loans, that leaves about $3900 for all other expenses, including rent/mortgage.

The trick to paying off loans during residency is to do residency at a very low cost area and have a super low mortgage. Our house is $140,000, so our monthly payment is about $650. We also get some tax benefit from the mortgage interest deduction which covers property tax. Since we live in a super cheap area, this house is actually not a rat hole. We also have two old but reliable Japanese cars since our college days, no car payments left.

It's doable. Not fun, but doable.

The older I get, the more I realize how good the Boomers had it (homes under $120k throughout the country, little to no educational debt, and salaries not much lower than today), and how much they have squandered our national wealth.

$650 month w/ property tax and insurance? What is your mortgage amount? Rate? Number seems low.

 

[RangerBob]

How many people attending college now actually need a college education to accomplish their wage earning duties?

Honestly, not many. Many of us would be better off without having the degree. But if our parents paid for it as many boomer parents have done, we're usually better off having a degree than not having it, unless we got a really great training opportunity after high school. If we have to borrow the money, on the other hand, then yes, most of us don't need that degree. I think the days of apprenticeship and on-the-job training need to return.

 

[mark110]

i wonder if this will affect most med students since many of us don't work for a non profit org

 

[japhy]

exactly. lower the damn interest rates for all.
while i would love to feel bad for med students and residents who took out >$300K to pay for med school with the dream that someone else was gonna wipe out that debt for them, while making an income placing them in the top 5% of all earners in the country, that's a little too much to ask.

i would have loved to think that by working at a state hospital my debt would be wiped out. but to have docs who are making $200-300K /year take the most advantage of this program is ridiculous and wrong. moreover to have couples file separately is yet another way to game the system. this simply fixes the gaping flaws in current policy.

sorry if i seem callous but you are not gonna find many people in today's environment feel bad AT ALL that doctors aren't getting hundreds in thousands in student loans forgiven

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.

 

[sazerac]

exactly. lower the damn interest rates for all.
while i would love to feel bad for med students and residents who took out >$300K to pay for med school with the dream that someone else was gonna wipe out that debt for them, while making an income placing them in the top 5% of all earners in the country, that's a little too much to ask.

i would have loved to think that by working at a state hospital my debt would be wiped out. but to have docs who are making $200-300K /year take the most advantage of this program is ridiculous and wrong. moreover to have couples file separately is yet another way to game the system. this simply fixes the gaping flaws in current policy.

sorry if i seem callous but you are not gonna find many people in today's environment feel bad AT ALL that doctors aren't getting hundreds in thousands in student loans forgiven

Of course, since many new attendings in today's student loan climate will have negative amortization on their loans (at $250K a year, 10% of discretionary income is approximately $2,000 a month - nowhere near large enough to pay the interest on a student loan), this delaying of student loan forgiveness only means that the amount forgiven will be even larger in the future.

Given the structure of today's student loans, if the goal is to reduce the amount forgiven then the optimal strategy would be to forgive the loan sooner rather than later.

 

[freaker]

exactly. lower the damn interest rates for all. sorry if i seem callous but you are not gonna find many people in today's environment feel bad AT ALL that doctors aren't getting hundreds in thousands in student loans forgiven

It depends. Is this program really about public service or is it about feeling sorry for people who don't make much money? That's a legitimate question given the name and nature of the program. If it's for public service, I really don't care what people "feel"; if you serve the public, it should apply to all equally regardless of income. If it's another income redistribution scheme, than you have a point.

I think the most egregious thing about this program is that certain people certainly chose lines of work based on a promise that was made, and now the bait and switch is in place. None of these programs address the real problem, which is that universities have the ability to charge whatever they want, get their money from the federal government, and then shove their graduates out the door deeply in debt while they build another pretty building and plant another round of tulips.

 

[Bostonredsox]

Yeah I saw this coming which is why I didn't take a lower paying job at a non profit to be pslf eligible. There was no way Uncle Sam could afford to write off doctors debt, the caps are just too high. I went IBR and have a boatload of kids and no spousal income. So my ibr payment on my hospitalist salary is essentially the interest my loans accrue. So after making 25 years of that payment, the government will forgive the rest, which is essentially what the balance is now, which is multiple hundreds of thousands of dollars. I will get the tax bomb no doubt, unless they do away with that in 25 years, but adding in the tax bomb it still only adds up to about an extra $150k compared with standard 10yr at the end, and that's with paying $3500 less per month for the first ten years. I can do a lot with an extra $3500/month for the next ten years.

Sorry to those of you expecting to get your debt forgiven after ten years of paying almost nothing....but you knew our govt would never let it happen.

 

[cbtk18]

Yeah I saw this coming which is why I didn't take a lower paying job at a non profit to be pslf eligible. There was no way Uncle Sam could afford to write off doctors debt, the caps are just too high. I went IBR and have a boatload of kids and no spousal income. So my ibr payment on my hospitalist salary is essentially the interest my loans accrue. So after making 25 years of that payment, the government will forgive the rest, which is essentially what the balance is now, which is multiple hundreds of thousands of dollars. I will get the tax bomb no doubt, unless they do away with that in 25 years, but adding in the tax bomb it still only adds up to about an extra $150k compared with standard 10yr at the end, and that's with paying $3500 less per month for the first ten years. I can do a lot with an extra $3500/month for the next ten years.

Sorry to those of you expecting to get your debt forgiven after ten years of paying almost nothing....but you knew our govt would never let it happen.

Sounds it will still apply to those that have already taken out loans.

 

[Bostonredsox]

Sounds it will still apply to those that have already taken out loans.

Im not folowing your statement, yes it will apply to those who have already taken out loans and who are planning for pslf. your pslf cap of 57k forgiven is big blow to those with say my debt load who were planning on pslf. I didnt expect pslf to actully pan out and payout our huge debts, so I never even considered it. The IBR fogiveness after 25 year of payment(with a tax bomb currently) isnt going away as of yet. thats the route I chose.

 

[cbtk18]

Im not folowing your statement, yes it will apply to those who have already taken out loans and who are planning for pslf. your pslf cap of 57k forgiven is big blow to those with say my debt load who were planning on pslf. I didnt expect pslf to actully pan out and payout our huge debts, so I never even considered it. The IBR fogiveness after 25 year of payment(with a tax bomb currently) isnt going away as of yet. thats the route I chose.

Multiple sources have confirmed that a cap for PSLF will only apply to those taking out new loans in 2015. As of now, any new legislation would not put a cap on forgiveness to those who are already have loans and only apply to new loans.

Could that change? Sure it could. But as of now. There is still no talk of capping PSLF forgiveness on existing loans.

 

[doctorFred]

Sorry to those of you expecting to get your debt forgiven after ten years of paying almost nothing....but you knew our govt would never let it happen.

sorry, could you do me a favor and clarify how the 162,000 i will have paid at the end of ten years is "almost nothing"?

 

[@JackShephard]

Multiple sources have confirmed that a cap for PSLF will only apply to those taking out new loans in 2015. As of now, any new legislation would not put a cap on forgiveness to those who are already have loans and only apply to new loans.

Could that change? Sure it could. But as of now. There is still no talk of capping PSLF forgiveness on existing loans.

Sources? Like the US government?

When a doctor applies and receives over 100k forgiven, pigs will fly.

 

[Bostonredsox]

Multiple sources have confirmed that a cap for PSLF will only apply to those taking out new loans in 2015. As of now, any new legislation would not put a cap on forgiveness to those who are already have loans and only apply to new loans.

Could that change? Sure it could. But as of now. There is still no talk of capping PSLF forgiveness on existing loans.

Oh I gotcha now. Give that two three years, they will retro activate It.

 

[Bostonredsox]

sorry, could you do me a favor and clarify how the 162,000 i will have paid at the end of ten years is "almost nothing"?

I see you getting capped at 57,000.

 

[@JackShephard]

I see you getting capped at 57,000.

And paying taxes on forgiveness - which with a 200k salary, it's an effective tax rate of like 1/3.

57k looks a lot more like 40k then.

Many people don't realize that the money isn't just forgiven, it's added to your income for that year and you pay taxes on it.

 

[@JackShephard]

This whole PSLF for high income earners was dead on arrival. Most people didn't take the time to look inside the box.

 

[Bostonredsox]

And paying taxes on forgiveness - which with a 200k salary, it's an effective tax rate of like 1/3.

57k looks a lot more like 40k then.

Many people don't realize that the money isn't just forgiven, it's added to your income for that year and you pay taxes on it.

Exactly. My forgiveness tax after 25 years of ibr will be like 150k. But I will have made more than that along the way by investing the $3k less per month for ten years the ibr reduces the payment too. Of course this doesn't work for everyone, particularly high earners with few or no dependents.

 

[@JackShephard]

There is no legislation yet to guide that answer, just a proposed budget that may or may not pass, which is deliberately unclear on that point and in any event almost definitely won't pass in its current form. There won't be an answer to your question until 2015.

Oh, there's an answer.

I would guarantee no physician earning over 150k will ever get a loan forgiven for over 100k. Forget 2015, you should think this is as liberal as we will be in the next 12+ years. When the right gets a hold of the Presidency and congress, they will make these liberal proposals look weak.

 

[@JackShephard]

Exactly. My forgiveness tax after 25 years of ibr will be like 150k. But I will have made more than that along the way by investing the $3k less per month for ten years the ibr reduces the payment too. Of course this doesn't work for everyone, particularly high earners with few or no dependents.

at what interest rate?

The interest that 150k or greater in loans builds is very significant. There's very few situations that a person would want to keep that large of a loan around for 25 years at any rate above 5%, especially with any salary above 200k.

 

[Bostonredsox]

at what interest rate?

The interest that 150k or greater in loans builds is very significant. There's very few situations that a person would want to keep that large of a loan around for 25 years at any rate above 5%, especially with any salary above 200k.

You misunderstand me. My ibr payment is essentially interest accumulation (about 2k/month). At the end of 25 years I'll essentially still have my entire balance left, unless I accept some repayment from employers along the way. At the end of 25 years, I'll pay a tax for the amount they forgive. That tax will be almost 150k. A lot right?? But. The difference between my ibr payment and standard repayment for those first ten years is over 3k/month. That means I'll have paid 400k less in payments over the first ten years. At the end of 25, I'll have paid nearly the same amount in 300 ibr payments as 120 standard payments. But the extra 400k I didn't pay during the first ten years will be worth much more by the end if the 25 due to investment returns, and I mean just index fund rates, plus general inflation. So then I take 400k and pay the tax and am still left with a ton. In the end, I'll pay a bit more in ibr, probably close to 80-90k more. But my family and I won't have had to live like a resident for the first 10 years as an attending with a massive student loan payment. Instead that same amount will pay my loan payment, car payments and mortgage. Like i said, I have a lot of kids so it dramatically reduces my ibr payment and makes this possible.

 

[Postictal Raiden]

You misunderstand me. My ibr payment is essentially interest accumulation (about 2k/month). At the end of 25 years I'll essentially still have my entire balance left, unless I accept some repayment from employers along the way. At the end of 25 years, I'll pay a tax for the amount they forgive. That tax will be almost 150k. A lot right?? But. The difference between my ibr payment and standard repayment for those first ten years is over 3k/month. That means I'll have paid 400k less in payments over the first ten years. At the end of 25, I'll have paid nearly the same amount in 300 ibr payments as 120 standard payments. But the extra 400k I didn't pay during the first ten years will be worth much more by the end if the 25 due to investment returns, and I mean just index fund rates, plus general inflation. So then I take 400k and pay the tax and am still left with a ton. In the end, I'll pay a bit more in ibr, probably close to 80-90k more. But my family and I won't have had to live like a resident for the first 10 years as an attending with a massive student loan payment. Instead that same amount will pay my loan payment, car payments and mortgage. Like i said, I have a lot of kids so it dramatically reduces my ibr payment and makes this possible.

If u account for inflation, you will find that you are actually paying less real dollar value over a period of 25 years than repaying the entire amount in only 10 years, even if it is 90k less.

Besides, that 150k tax bomb after 25 years will not be as much as it's today. Assuming a 3% annual inflation, 150k after 25 years will have the same purchase power as 75k.

 

[@JackShephard]

You misunderstand me. My ibr payment is essentially interest accumulation (about 2k/month). At the end of 25 years I'll essentially still have my entire balance left, unless I accept some repayment from employers along the way. At the end of 25 years, I'll pay a tax for the amount they forgive. That tax will be almost 150k. A lot right?? But. The difference between my ibr payment and standard repayment for those first ten years is over 3k/month. That means I'll have paid 400k less in payments over the first ten years. At the end of 25, I'll have paid nearly the same amount in 300 ibr payments as 120 standard payments. But the extra 400k I didn't pay during the first ten years will be worth much more by the end if the 25 due to investment returns, and I mean just index fund rates, plus general inflation. So then I take 400k and pay the tax and am still left with a ton. In the end, I'll pay a bit more in ibr, probably close to 80-90k more. But my family and I won't have had to live like a resident for the first 10 years as an attending with a massive student loan payment. Instead that same amount will pay my loan payment, car payments and mortgage. Like i said, I have a lot of kids so it dramatically reduces my ibr payment and makes this possible.

Understandable. Although many financial professionals that I follow rarely would advise the invest while holding off on paying off the debt. I'd assume you're factoring in maybe an 8% return, if your student loans are more than 4% then I wouldn't play that game. A 3% or less, yeah - that's awesome.

I definitely wouldn't count on the government paying 150k to any physician in 15+ years. It's such a low possibility with a government going bankrupt and borrowing money left and right.

 

[@JackShephard]

If u account for inflation, you will find that you are actually paying less real dollar value over a period of 25 years than repaying the entire amount in only 10 years, even if it is 90k less.

Besides, that 150k tax bomb after 25 years will not be as much as it's today. Assuming a 3% annual inflation, 150k after 25 years will have the same purchase power as 75k.

There's no way you can draw conclusions like this without knowing the interest rate of the loan. Is it less? Sure. But loans around 7%, you'll be paying a fortune in interest over that period of time. Also, people don't know what they'll be earning in 20 years. If physician incomes were dropped by 33% instantly, I'm sure many would wish they had paid for their loans.

There's very few scenarios where you want to hold off on paying these loans off. Tax savings, inflation savings, investing the difference, etc. These all have risk built into them that most people ignore. I.e. predicting the next 20 years based upon the last 20 years doesn't always work. Especially with the government debt obligations.

 

[Silent Cool]

And paying taxes on forgiveness - which with a 200k salary, it's an effective tax rate of like 1/3.

57k looks a lot more like 40k then.

Many people don't realize that the money isn't just forgiven, it's added to your income for that year and you pay taxes on it.

That's exactly right, which is why I hate the term "forgiveness."

 

[theshellyb]

Why is everyone freaking out about the amount forgiven being taxed? It's not, under PSLF:
http://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness-common-questions.pdf


Q3 Are loan amounts forgiven under PSLF considered taxable by the IRS?
A3 No. According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF are
not considered income for tax purposes. For more information, you should check with the IRS or your
tax advisor.

 

[theshellyb]

And paying taxes on forgiveness - which with a 200k salary, it's an effective tax rate of like 1/3.

57k looks a lot more like 40k then.

Many people don't realize that the money isn't just forgiven, it's added to your income for that year and you pay taxes on it.

Incorrect, see above.

 

[a runner]

Why is everyone freaking out about the amount forgiven being taxed? It's not, under PSLF:
http://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness-common-questions.pdf


Q3 Are loan amounts forgiven under PSLF considered taxable by the IRS?
A3 No. According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF are
not considered income for tax purposes. For more information, you should check with the IRS or your
tax advisor.

Thank you, there is so much misinformation in this thread. Not only that, but if the proposals included in the budget are adopted, the 25 debt cancellation will not even be taxed either. The "tax bomb" will be gone. Nobody has proposed capping the 25 forgiveness at this point, and I don't see the logistics of how this could even be done. The whole point of the 25 year forgiveness is that nobody should have to pay more than a predetermined % of their income for more than 25 years to pay off their student loans. What repayment plan would a person graduate to after fulfilling the 25 year requirement?

The education department has already clarified that if this proposal is passed, it would obviously not apply to current borrowers, and instead only apply to future borrowers who take out their first loan after a specified future date, because they rightly recognize that the terms to a program like this cannot be changed midstream.

It doesn't matter if the public thinks physicians should be eligible for cancellation of their student loan debts. Everybody knows some doctors have unreal amounts of student loans due to the 11-15 years of training required and not everybody has their rich parents pay for it. The fact that these programs are based on income means that it automatically excludes those who make too much money and only includes those whose debts are "adequately unbearable" or "unpayable" as a function of income related to total debt.

It doesn't matter if anyone says physicians can afford to pay off their student loans completely because "they make so much money." If that is true, they won't qualify for income based repayment plans that ultimately cancel their debt. Someone might say physicians can afford to pay it all off. You could say the same thing about the English literature major who now works making $35k and doesn't make enough to have a payment. That person could afford to pay off their $20k in loans if they really wanted to, but guess what, somebody decided that they won't have to, and neither will we. You can't categorically exclude a group of people based on their field of work.

When it comes to the PSLF program, I agree that it won't be sustained for those with high debt (basically all grad/professional school graduates), but for those who have already taken out loans, it seems clear they would slip through the cracks and be able to use it. I actually agree that all forgiveness/cancellation/income based repayment programs should be phased out for future borrowers.

 

[@JackShephard]

Incorrect, see above.

I must have confused the other loan forgiveness programs (I've have a lot of financial experience and have seen actual loan forgiveness programs go through / not student loans. I.e. I've seen lots of people shocked when the tax man takes 1/3 of their forgivenss).

Anyway, you're right that in it's current 2014 state - you don't pay taxes on it.

Let's not forget that this was originally supposed to be good for 200-300k, now it's looking like 57k.

I would bet money that the IRS or the government find a way after that money. People are "freaking out" or whatever you said, because they have experience and know how these things work.

Unfortunately the jury will be hung on this issue for another 3-5 years. If I was in a long residency with any of you, I would love to make a $500 bet that this doesn't pan out.

 

[@JackShephard]

It doesn't matter if the public thinks physicians should be eligible for cancellation of their student loan debts. Everybody knows some doctors have unreal amounts of student loans due to the 11-15 years of training required and not everybody has their rich parents pay for it. The fact that these programs are based on income means that it automatically excludes those who make too much money and only includes those whose debts are "adequately unbearable" or "unpayable" as a function of income related to total debt.

It doesn't matter if anyone says physicians can afford to pay off their student loans completely because "they make so much money." If that is true, they won't qualify for income based repayment plans that ultimately cancel their debt.

Oh, but it does matter. Public opinion matters and there are no laws right now that can't be changed.

it would obviously not apply to current borrowers, and instead only apply to future borrowers who take out their first loan after a specified future date, because they rightly recognize that the terms to a program like this cannot be changed midstream.

This type of statement makes sense except when times are desperate.

What this doesn't factor in is the state of the union. The US currently owes > 16.7 trillion dollars. The population is getting older and older and health expenditures are rising at an incredibly rapid pace. Medicare is running out of money and the government soon will not be able to pay for all the old and sick people to undergo defensive medicine in EDs across the nation, let alone to sustain life of these old people in the final years.

There have been proposals to stop paying resident salaries. You heard that correctly - that's 150-300k in lost salary - it could be provided by the hospitals, but there's no assurance they will match what medicare has been paying. Want to have 200-300k in debt and then choose NOT to do a residency? It won't happen. That's a pretty sweet market for the hospitals if they do have to pay you. Specifically people who have to work for you without other options.

Think about 10 years from now when the problem is bigger, more in politicians faces and unable to be ignored. Programs like this will be the last thing the government is focused on following through on when Grandma and Grandpa can't even afford basic primary care.

So while you and others will say things like, "It doesn't make sense to change programs midstream." Or "There's no precedence for this." I agree. But I still say this program won't be around. Furthermore, these are liberal proposals - wait until we get some conservative proposals on student loan reform. All it takes is a president + congress to agree and a program like this is gone.

I would advise people to pay off their debt. Relying on the government, congress, the IRS, or dept of education isn't a good bet. These are the types of threads that I hope someone bumps 5-10 years from now. Not because I don't want people to save their money, but because I think the government is selling a false dream and people will get suckered into it.

 

[TheWeeIceMan]

I'll believe that the government will forgive student loans when I actually see someone successfully make it happen. Three more years to go. Anything else is just speculation with the way our government works (or doesn't).

Personally, I could see the government actually passing the worst of both worlds. Instituting the cap on PSLF and keeping the tax bomb on PAYE/IBR (or maybe capping those as well). Maybe that's just the pessimist that I've become, but we'll see.

 

[@JackShephard]

I'll believe that the government will forgive student loans when I actually see someone successfully make it happen. Three more years to go. Anything else is just speculation with the way our government works (or doesn't).

Personally, I could see the government actually passing the worst of both worlds. Instituting the cap on PSLF and keeping the tax bomb on PAYE/IBR (or maybe capping those as well). Maybe that's just the pessimist that I've become, but we'll see.

I don't know if it's pessimistic.

When I see an obese diabetic COPD patient with CAD who is 50 years old and they tell me they are going to lose 150 lbs and start a perfect diet, I'm optimistic and encouraging. In the back of my mind, I still know the probability of him doing it is like < 3%.

Our government is the obese diabetic COPD patient.

 

[sazerac]

There's no way you can draw conclusions like this without knowing the interest rate of the loan. Is it less? Sure. But loans around 7%, you'll be paying a fortune in interest over that period of time. Also, people don't know what they'll be earning in 20 years. If physician incomes were dropped by 33% instantly, I'm sure many would wish they had paid for their loans.

There's very few scenarios where you want to hold off on paying these loans off. Tax savings, inflation savings, investing the difference, etc. These all have risk built into them that most people ignore. I.e. predicting the next 20 years based upon the last 20 years doesn't always work. Especially with the government debt obligations.

With repayment plans that are based on income, the interest rate is irrelevant. It could be 100% APR and the amount you spend on debt service would not change. The same goes for principal... even if your loans were $5,000,000 the amount that comes out of your paycheck over your career would not change one penny.

With the current era of payments based on income, plus loan forgiveness when the loan payments are (more than likely) insufficient, the entire concept of "loan" has been turned on its head. These aren't loans anymore; these are income taxes.

In 2014, the cost to a student to attend medical school or most other professional schools is a 10% tax on income for a decade (and the 2015 proposal bumps this to 25 years). The actual amount of cash transferred from the federal government to the school is not germane to the student's finances.