Gaming Student Loan Forgiveness - Unethical?

[God or Mammon?]

The WSJ article talks about Pay As You Earn:

http://online.wsj.com/news/articles/SB10001424052702304279904579517934206301354?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304279904579517934206301354.html

A question I have is, is it unethical to structure income such that it is minimized until the debt is forgiven?  Lots of ways to defer income legally....

[nawhite]

Unethical? No. Poorly designed government subsidy? Yes.

I am an extremely firm believer that following the letter of the law is not unethical (hiring lobbyists to influence the letter of the law can be unethical though). We elect representatives to make laws that affect society. Sometimes they do a good job, sometimes a poor job. Sometimes their choices have unintended consequences. However in a "Republic" form of government, the rules of society are decided by elected officials so it cannot be unethical to follow the letter of the law.

(One exception to the above: when the letter of the law is out of date with technology or changing social norms. i.e. when a new law needs to be written or a law needs to be changed but has not yet because of the limited throughput of congress)

Unfortunately, this particular subsidy transfers money from all taxpayers to universities by allowing the universities to raise tuition expenses ridiculously fast. Sure there is some benefit to individual borrowers but primarily this increases the cost of college for all students.

[schoopsthecat]

I vote for unethical.  Just because the system allows something doesn't make it right.  In my view, borrowing money and then not paying it back if you are capable is just wrong no matter who the lender is.

[nereo]

I vote for unethical.  Just because the system allows something doesn't make it right.  In my view, borrowing money and then not paying it back if you are capable is just wrong no matter who the lender is.

+1
Something can be legal even if it's not ethical.  In the case of student-loan repayment the Pay As You Earn (PAYE) was designed to help people with large student loans still be able to make ends meet if they lost their job or were working a lower-paying job (like public sector work).  But it was never intended to let people get off the hook for tens of thousands of dollars if they have an ability to pay.

just because there's a "take a penny if you need one" tray doesn't mean you should dump the contents into your pocket after buying a jumbo-latté.

[Eurotexan]

+2.

I agree, unethical. I have been catching up on some posts today (vacation day, yay!) and I have been getting annoyed about the posts talking about gaming the system when it comes to paying back student loans. Regardless of the rules, I am a firm believer in you make every effort you can to pay back loans. Manipulating your income is not making every effort, it's make efforts NOT to pay it back. Slightly different but kind of the same, stories about bankruptcy make my blood boil as well. You took on the debt, pay every penny back. I am just old fashioned I guess but I kind of like it that way.

[soccerluvof4]

+3. Anyway you look at it, its unethical imho. But I also agree its a flawed system but so is most government run subsidy's but that doesn't mean you cheat it.

[bugbaby]

++

And if it's ethical or okay, then it's also okay for my 'welfare queen' neighbor who's opted to collect foodstamp, welfare check, section 8 and the free cellphone. So what if she's wearing $100 Nikes and buying cigarettes with the cash.  After all, it's more financially sensible (and legal to boot), than work 40hrs at minimum wage and still come up short.

[MDM]

A question I have is, is it unethical to structure income such that it is minimized until the debt is forgiven?

Answering that specific question, I'm going with "no, it is perfectly ethical".  The reasoning is similar to that of Learned Hand on income tax.

While it may be ethical, however, it may also be unwise because what one administration may give, another may take away - and then all that avoided income is forever lost and/or all that accumulated interest still must be repaid.

On a larger topic, the practice of "vote for me because I'll give you free things (by making other people pay for them)", despite being practiced by politicians of varying ideologies, lands in the "completely unethical" category.

[thesinecure]

I vote for unethical.  Just because the system allows something doesn't make it right.  In my view, borrowing money and then not paying it back if you are capable is just wrong no matter who the lender is.

+ for unethical - you borrowed it, you owe it, just because a system creates an "out" doesn't mean you shouldn't repay it

this isn't that far from declaring bankruptcy from a purely intellectual standpoint, it's just the ramifications of this plan (versus a bankruptcy) are not potential as severe

that all said, i probably don't view the programs that allow some portion to be "worked off", like the school teaching programs and the like - that "forgiveness" is really just extra compensation in my view, you do have to actually do something for it (scheming how to keep income low or intentionally staying under phase outs is not the same thing)

I guess for those who don't think it unethical, is immoral or at least morally questionable an apt description then?  because if none of those apply, then the welfare queen comparison will be pretty tough to refute

[MooseOutFront]

meh.  The program isn't exactly a free lunch. On the income based repayment calculation my wife and I would be having to pay more than triple what we pay now monthly on consolidated fed student loans.

[Mazzinator]

http://forum.mrmoneymustache.com/welcome-to-the-forum/ethical-dimensions-of-student-loan-income-based-repayment-plans/msg165179/#msg165179

Some light reading...

[nawhite]

I guess for those who don't think it unethical, is immoral or at least morally questionable an apt description then?  because if none of those apply, then the welfare queen comparison will be pretty tough to refute

I guess I see it more as that we as a society want to encourage students who would really like to work as a lawyers for non-profits but may not choose that path because the market has decided that that life choice will be financially difficult.. We also as a society do not want students to have debilitating debts that make it impossible so start your life. Some of our elected officials decided that 10% of our income for 10-20 years is a good ceiling on the price of an education. Therefore it is likely that we as a society think a decent ceiling on student loan repayment should be 10% of a person's income (regardless of where they went to school and how much it costs).

Having students suppress their earnings for the sole reason of minimizing student loan payments is bad math on the student's part if the student's goal is minimum affect on lifetime earnings. But, if the student decides to use that time to a)work for a non-profit, or b) try jobs they wouldn't have otherwise tried because they needed to make a ton of money to pay off their loans, then society wins.

I think capping the cost of student loans on a young person at 10% of income for 10-20 years ends up in a net win overall for society and thus is not unethical.

[thesinecure]

But, if the student decides to use that time to a)work for a non-profit, or b) try jobs they wouldn't have otherwise tried because they needed to make a ton of money to pay off their loans, then society wins.

I think capping the cost of student loans on a young person at 10% of income for 10-20 years ends up in a net win overall for society and thus is not unethical.

ok, but at what level and should the choice of university and major ever factor in?

just because you CAN get in to (insert name of any expensive school here) and can finance a degree in something that won't necessarily get you a job or requires a graduate degree afterwards, doesn't necessarily mean you SHOULD.

i guess for me it's much more basic - if you take the action of borrowing the money, you should have an obligation to repay it, not have society as a whole underwrite it for you more than it already has been

i'm all for making it affordable, but in my view this sort of program allows for really bad decisions to be supplemented further by taxpayers broadly, which ultimately hits everyone, not just those who could afford to do so

and i'm not suggesting jail, that sort of thing;  i guess i view caps at 10% and similar numbers are just not enough to really encourage planning on the front end so that people make better decisions in the first place

[beltim]

I guess for those who don't think it unethical, is immoral or at least morally questionable an apt description then?  because if none of those apply, then the welfare queen comparison will be pretty tough to refute

I guess I see it more as that we as a society want to encourage students who would really like to work as a lawyers for non-profits but may not choose that path because the market has decided that that life choice will be financially difficult.. We also as a society do not want students to have debilitating debts that make it impossible so start your life. Some of our elected officials decided that 10% of our income for 10-20 years is a good ceiling on the price of an education. Therefore it is likely that we as a society think a decent ceiling on student loan repayment should be 10% of a person's income (regardless of where they went to school and how much it costs).

Having students suppress their earnings for the sole reason of minimizing student loan payments is bad math on the student's part if the student's goal is minimum affect on lifetime earnings. But, if the student decides to use that time to a)work for a non-profit, or b) try jobs they wouldn't have otherwise tried because they needed to make a ton of money to pay off their loans, then society wins.

I think capping the cost of student loans on a young person at 10% of income for 10-20 years ends up in a net win overall for society and thus is not unethical.

That's true, but that's not really what the OP asked.  The OP asked:

is it unethical to structure income such that it is minimized until the debt is forgiven?  Lots of ways to defer income legally....

For example, a 457(b) plan is considered deferred compensation.  It reduces your taxable income, and can be withdrawn before retirement age with no penalty.  Is contributing to a 457(b) plan unethical while taking advantage of the federal pay as you earn plan for student repayment?

[thesinecure]

For example, a 457(b) plan is considered deferred compensation.  It reduces your taxable income, and can be withdrawn before retirement age with no penalty.  Is contributing to a 457(b) plan unethical while taking advantage of the federal pay as you earn plan for student repayment?

only if you don't intend to fully repay the entirety of the student debt

ultimately, the rates of return versus the loan should be such that debt repayment was encouraged, but in a low rate environment like we have (and/or available subsidies which have a similar effect) that's not always the case

[nawhite]

For example, a 457(b) plan is considered deferred compensation.  It reduces your taxable income, and can be withdrawn before retirement age with no penalty.  Is contributing to a 457(b) plan unethical while taking advantage of the federal pay as you earn plan for student repayment?

only if you don't intend to fully repay the entirety of the student debt

Meh, I disagree here too. I think using a 457b or 401k plan to defer compensation while counting on loan forgiveness is totally ethical. We as society want to encourage people to save money so we give them the option of deferring the taxes on their retirement savings. The debt forgiveness program just becomes another incentive to save money in a deferred compensation plan. People saving money in retirement plans is good for society and limiting the amount of income people have to pay for school is good for society. I'm still totally on board with using the law as written (though disappointed that it benefits schools disproportionately).

(and again, a student who was lounging on their parents couch rather than getting a job and paying their education off early is not maximizing their lifetime earnings. So the incentive is still there for people to work as hard as they can. This is not one of those "tax rate >100%" cases which disincentivize people from working)

[thesinecure]

only if you don't intend to fully repay the entirety of the student debt

Meh, I disagree here too. I think using a 457b or 401k plan to defer compensation while counting on loan forgiveness is totally ethical.[/quote]
you're entitled to your opinion, but in the end just realize you're saying it's ok not to pay back the debts you owe

i don't think that's ever ethical - and note I used the word "intend"

if the program is there, it's hard to argue people shouldn't use it;  but it's a pretty blurry line between college grads saving money while not paying loans as they wait for forgiveness, and someone who chooses not to work because it's easier (or even better economically) to collect unemployment/welfare

[Sebastian]

lol... ya'll are just jealous you didn't game the system and paid your loans off in full :D

I think it's ridiculous that there is such a thing to begin with as I know a few lawyers who plan on doing this, and I think people should be stuck with the debt they spent on dumbass shit.

At the same time. Fuck it. Game the system! Ethics are out the window these days. We live in a feudal system working for the 1% might as well take little advantage over anything you can.

[simonsez]

you're entitled to your opinion, but in the end just realize you're saying it's ok not to pay back the debts you owe

"You're entitled to your opinion, but in the end just realize you're saying it's ok not to pay back (a portion of) the debts you do not owe given the program's rules that an individual adheres to for the duration of said program."

FTFY, and yes, I would say that is ok.

[nereo]

lol... ya'll are just jealous you didn't game the system and paid your loans off in full :D

I think it's ridiculous that there is such a thing to begin with as I know a few lawyers who plan on doing this, and I think people should be stuck with the debt they spent on dumbass shit.

At the same time. Fuck it. Game the system! Ethics are out the window these days. We live in a feudal system working for the 1% might as well take little advantage over anything you can.

so... your answer to the question is..... what exactly?  that ethics no longer exist?  huh.  well i guess that would make it all a mute point.

[alm0stk00l]

It is not unethical. Ethics are the actions deemed acceptable by society. Laws are used to enforce ethics. The law currently allows for individuals to take advantage of these plans and does not preclude someone based on how they achieve a low income. Therefore, right now, it is not unethical.

Now if you are asking if it is moral, then it changes a bit. Morality is one's own rule-set for living life. Apparently, many on here believe it is immoral and have very strong views on personal responsibility. However, you can only use their opinions as a way to inform your own; the morality of the choice is up to you. Others can then value your actions as moral or immoral in their own view.

As for my feelings on the plan, if you don't mind having low income, regardless of how you go about achieving that, then I am all for the program. Educating a populace is a reward in and of itself. So if I have to pay for your college, I don't mind. Educating those around me, regardless of what they do with that education, benefits me. An educated populace is less violent, has a more sustainable birth rate, and has many other advantages. I like the program and I hope as many people as possible find a way for it to help them.

[Thegoblinchief]

Not interested in discussing the distinction of ethical vs moral, as that's got a forest's worth of paper devoted to it already.

So I'll rephrase the question: Given the chance, would I do it?

No. I borrowed the money, it's my obligation to pay it back. Not naming names, but I shake my head at certain people with seven figure assets but such a low earned income that IBR lets them essentially skate until forgiveness.

And, no, it's not analogous to gaming taxes. Taxes take my income away, it's not a system I ever signed on to. Gaming loan repayment is money I agreed to pay back.

[Suit]

I guess for those who don't think it unethical, is immoral or at least morally questionable an apt description then?  because if none of those apply, then the welfare queen comparison will be pretty tough to refute

I guess I see it more as that we as a society want to encourage students who would really like to work as a lawyers for non-profits but may not choose that path because the market has decided that that life choice will be financially difficult.. We also as a society do not want students to have debilitating debts that make it impossible so start your life. Some of our elected officials decided that 10% of our income for 10-20 years is a good ceiling on the price of an education. Therefore it is likely that we as a society think a decent ceiling on student loan repayment should be 10% of a person's income (regardless of where they went to school and how much it costs).

Having students suppress their earnings for the sole reason of minimizing student loan payments is bad math on the student's part if the student's goal is minimum affect on lifetime earnings. But, if the student decides to use that time to a)work for a non-profit, or b) try jobs they wouldn't have otherwise tried because they needed to make a ton of money to pay off their loans, then society wins.

I think capping the cost of student loans on a young person at 10% of income for 10-20 years ends up in a net win overall for society and thus is not unethical.

+1

I completely agree. The legislature has decided that having people work in the public sector adds value to society and in recognition of that and understanding that public often pays much less than private (especially when considering an entire career) it created a program to reward working for the public sector. I bet that many of my coworkers may have difficulty with paying their loans if it weren't for IBR and PLF but they are intelligent and passionate about our work and it would be a shame for them to be driven to the private sector due to needing to make more money.

[wtjbatman]

I'll be using the program, and I see nothing wrong with that. In my case I'm not "gaming" the system, as IBR wasn't even around when I started college. I'm just using IBR alongside public student loan forgiveness to help me manage my student loan burden while working in an underpaid profession that is necessary for society to function properly.

Obviously I'm biased :)

[AMustachianMurse]

Unethical?  Perhaps.  But is it ethical to "Game" the income tax system by rolling over a roth IRA.  Or by maxing out your tax-deferred accounts to put yourself into the lowest tax bracket... the tax bracket which was designed for impoverished people, and 65 year old + retired people to not overwhelm them with tax burden? 

As a poker player we look for any edge that we can get, exploit it, and never look back...leave the moral discussion up to the philosophers, historians, you, and god when you meet him/her/them.  All we can do in our lives is the best we can given the information we have at hand.

Another example is professional cycling, and prize-fighting/mma.  If EVERY single one of your competitors is doping, and it is a competitive disadvantage to not use PEDs, and we are talking about your livelihood...is it immoral to use them?  Everyone's argument against PEDs is that it's unfair competition....but if the competition is all doing it, is it unfair?  Gaming the tax system is like the personal finance version of PEDs, every one at some level is gaming the system.  It isn't up to you to change it.

[bugbaby]

I think why some examples appear more unethical than others, is that we consider the spirit of the law, and not just the letter of it.

Tax breaks, credits, loan forgiveness laws etc are designed to create incentives or disincentives for behavior. e.g public service law forgiveness is presumably to enable those so inclined to pursue public service careers without undue financial burden from low incomes of those sectors.  But if one uses it to fund a retirement into leisure while having big $$$ in the banks & not paying back the loans?

There was a woman who won a mil in the lottery but continued to collect welfare. So her income remained low and she passes the 'means test' but did she deserve the welfare now? Well the state didn't think so and made her pay back.

Using Roth IRAs, tax credits for the intended purposes isn't 'gaming'.  However, by lumping together all instances of using legal 'loopholes' and arguing they are all equal, of course we can now justify anything we wish.

[Mr. Frugalwoods]

I don't see this as any less unethical than a backdoor Roth IRA, tax loss harvesting, or a Roth conversion pipeline in early retirement. 

The laws exist.  Would I write the law this way?  Probably not, but the lobbyists didn't ask me.

If you don't take advantage of the letter of the law, then you are making a charitable contribution to the US Government.

[bugbaby]

If you don't take advantage of the letter of the law, then you are making a charitable contribution to the US Government.

I have to agree with this right here, regardless of how I may feel about certain scenarios that stretch it to its extreme logical conclusions.  I think no one would be faulted for this and would be indeed rather dumb to leave legit $$ on the table. 

Ultimately of course once the public gravy train derails, laws would have to be modified accordingly. 

[Suit]

It seems like a fair number of people think this is unethical based on whether the person has the ability to pay the loans back. However doesn't that reasoning just penalize people like me who make active efforts to be able to save money for my future rather than the people who have no ability pay because they buy lunch everyday and go to Starbucks, etc?

[beltim]

It seems like a fair number of people think this is unethical based on whether the person has the ability to pay the loans back. However doesn't that reasoning just penalize people like me who make active efforts to be able to save money for my future rather than the people who have no ability pay because they buy lunch everyday and go to Starbucks, etc?

Not really. The issue isn't what you spend the rest of your money on - the issue is whether that money is counted in your income.  I have no problem with taxable savings or using a Roth IRA.  But using a 457(b) plan to defer compensation by a decade or so to reduce the amount you have to pay on student loans is very different.  I would similarly have a problem if lunch or Starbucks were deductible for your income and reduced the amount you had to pay under IBR. 

[Suit]

If the issue is that contributing reduces my AGI which in turn reduces my income based payments, then I'm curious about other "above the line" deductions that would reduce AGI.  As a question to those who think it is unethical to reduce my AGI by contributing to a 457b plan: Would it be unethical to claim any and/or all of these (assuming I have the proper basis for the deduction) which would also reduce my AGI while a person is on IBR and PLF?

Contribution to Traditional IRA
Certain expenses of performing artists
Certain expenses of state officials
Certain expenses for books and supplies incurred by teachers
Certain expenses for Army Reserve members
Certain deductions of life tenants and income beneficiaries of property
Retirement plan savings for the self-employed
Penalties forfeited because of premature withdrawal of funds
Alimony payments
Reforestation expenses
Required repayments of supplemental unemployment compensation
Jury duty pay given to the employer
Clean fuel vehicles
Moving expenses
Archer Medical Savings Accounts
Interest on student loans
Higher Education expenses
Health savings accounts
Costs involving discrimination suits

[beltim]

If the issue is that contributing reduces my AGI which in turn reduces my income based payments, then I'm curious about other "above the line" deductions that would reduce AGI.  As a question to those who think it is unethical to reduce my AGI by contributing to a 457b plan: Would it be unethical to claim any and/or all of these (assuming I have the proper basis for the deduction) which would also reduce my AGI while a person is on IBR and PLF?

In general I look at the intent of various programs to help me determine the ethics of taking advantage of the program.  In this case I did a little more reading about 457 plans and discovered that the legislative intent of 457(b) plans is to facilitate retirement savings.  I think if someone contributes to a 457 plan with the intent of using it for retirement savings, then using it and an income-based repayment plan for student loans is perfectly ethical.

[ontheupandup]

The number of peers I know who (think they) are gaming the system by using these programs is astounding. There seems to be little to no understanding of the taxation that will take place on the full loan amount PLUS accrued interest (often of 20+ years) that is "forgiven". The forgiveness is viewed by most states as income, and is therefore subject to capital gains tax in whatever year it's forgiven. So, for example, my husband has $200K+ in dental school loans, and after doing the math--and checking with our accountant-- we would be looking at paying between 40-50% on a total sum of principal + interest of over $400k if we participated in a PAYE program. Which is nearly or more than $200k ALL AT ONCE.

So, paying almost nothing now sounds great! But not only are you sacrificing income for two decades in order to qualify for the program, you are also most likely still on the hook for all of that money... unless your state's capital gains tax changes dramatically or you're willing to move to a state with different laws. And really, all of that could look dramatically different 20 years from now. Enticing as it may seem, the whole thing just seems terribly risky to me.

[JustTrying]

The number of peers I know who (think they) are gaming the system by using these programs is astounding. There seems to be little to no understanding of the taxation that will take place on the full loan amount PLUS accrued interest (often of 20+ years) that is "forgiven". The forgiveness is viewed by most states as income, and is therefore subject to capital gains tax in whatever year it's forgiven. So, for example, my husband has $200K+ in dental school loans, and after doing the math--and checking with our accountant-- we would be looking at paying between 40-50% on a total sum of principal + interest of over $400k if we participated in a PAYE program. Which is nearly or more than $200k ALL AT ONCE.

So, paying almost nothing now sounds great! But not only are you sacrificing income for two decades in order to qualify for the program, you are also most likely still on the hook for all of that money... unless your state's capital gains tax changes dramatically or you're willing to move to a state with different laws. And really, all of that could look dramatically different 20 years from now. Enticing as it may seem, the whole thing just seems terribly risky to me.

I believe that for Public Service Loan Forgiveness, the forgivee will not be taxed on the amount forgiven. (That is, if the program remains as it is written today). For other types of forgiveness, you are correct, the forgivee would be required to pay tax on the amount forgiven.

[bikebum]

I think it is not unethical. The forgiveness is part of the terms of the loan. If there is a problem with borrowers not paying enough back, the terms of future student loans should be changed.

In general, I think if someone makes you an offer and you accept it while sticking to the terms of the agreement, it is not unethical.

I don't know whether I think it is a good policy or not though; I wonder who picks up the tab.

[schoopsthecat]

There is a huge difference between structuring your taxes through use of IRAs, deductions, etc. within the structure of the law, and borrowing money with the intention of never paying it back.

This is kind of off topic, but as a professor at a major research university, I benefit from the fact that government student loan programs have driven up the cost of education in the US.  Government student loan programs seemed to solve one problem while radically causing another.  Tuition at schools all over this country would be a tiny fraction of what they are today were it not for the fact that government has made it possible for virtually anyone to get a loan.  Loans drive tuition prices up, not the other way around.

Taking out a big student loan is the most foolish decision that the vast majority of young people make these days.  Having said that, borrowing money with the intention not to repay it is lying, deception and fraud to the lender...even if the lender is the rest of the tax paying society.  I'm an atheist, and I think it is morally wrong.  In a civil society there needs to be a sense of personal responsibility, and if you were stupid enough to borrow my money (and everyone else's), then it is your moral responsibility to do everything you can to pay it back.  As daunting as student loan debt is, at least it's generally not at insane interest rates.

One other thought is that by purposely keeping your income low in order to qualify for debt forgiveness you damage society both by stealing our money by defaulting on your loan, and by depriving society of the fruits of whatever you would create were you not following this path.

[bikebum]

borrowing money with the intention not to repay it is lying, deception and fraud to the lender...even if the lender is the rest of the tax paying society.

I disagree in this case. The forgiveness is part of the original agreement. The student, if they are paying attention, knows that they may be able to use the forgiveness at the time they accept the loan. If you think the forgiveness is a bad idea, then argue we should do away with it. I don't think the student is doing anything wrong by taking advantage of something that is part of the deal.

Do you think it is reasonable to expect a student to repay the whole loan even if the system encourages them not to? I say blame the system, not the student.

[warfreak2]

borrowing money with the intention not to repay it is lying, deception and fraud to the lender...even if the lender is the rest of the tax paying society.

I disagree in this case. The forgiveness is part of the original agreement. The student, if they are paying attention, knows that they may be able to use the forgiveness at the time they accept the loan.

+1

At least in the UK, I'd argue that "student loans" are really more of a loan-like contract where the student agrees to probably eventually pay it back. Real loans don't come with clauses like:

"You didn't earn £16,910 this year? OK, pay nothing."
"You're permanently unable to work? OK, never pay anything."
"You didn't finish paying it off after 25 years? OK, never pay anything."

And these were literally used as selling points to get us all to go to university and not worry about taking on such much "debt".

The government knew, when lending, that the economic value of that contract was lower than the actual amount loaned. Being paid back in full was never their plan.

[Rural]

borrowing money with the intention not to repay it is lying, deception and fraud to the lender...even if the lender is the rest of the tax paying society.

I disagree in this case. The forgiveness is part of the original agreement. The student, if they are paying attention, knows that they may be able to use the forgiveness at the time they accept the loan.

+1

At least in the UK, I'd argue that "student loans" are really more of a loan-like contract where the student agrees to probably eventually pay it back. Real loans don't come with clauses like:

"You didn't earn £16,910 this year? OK, pay nothing."
"You're permanently unable to work? OK, never pay anything."
"You didn't finish paying it off after 25 years? OK, never pay anything."

And these were literally used as selling points to get us all to go to university and not worry about taking on such much "debt".

The government knew, when lending, that the economic value of that contract was lower than the actual amount loaned. Being paid back in full was never their plan.

US student loans have all of those exceptions (minimum income level, disability, time limit). But we (that is, the public in general) don't generally think of them the way you make it sound as though the British public thinks of it. I wonder why.

[warfreak2]

I don't intend to say that that's the general attitude of Brits - I don't really know, though I think a large proportion of students did only agree to the loans because of the lax conditions. I should also add that I do include the full nominal amount as a liability in my Gnucash accounting.

[nereo]

been following this thread with a lot of interest, and I will say that arguments made on both sides at least make sense to me.
Also, I realized that the wording of hte OP's thread adds a certain level of bias - specifically the term "gaming the system".  I suspect that if the question had been phrased "is it ok to use an advertised term within a loan contract to pay the minimum amount" there would have been fewer negative responses.

Here's some food for thought, though.  My fiancée and I both have moderate student loans currently in deferment (we went back to school recently).  However, my entire cohort of friends came through grad-school and undergrad before PAYE became policy - but it still applies to our loans.
I know multiple people with six-figure SLs.  Many of them are using PAYE, and at least two that I know have decided that to be effectively SAHM because working more would mean huge loan payments.  We took out loans when PAYE wasn't enacted, it wasn't on our original loan contract, and yet now they benefit from it.  Is that ethical?  Should they not make the effort to pay back their loans on the original terms? Or should they take PAYE on its face value - that it was created to help people who took out enormous balances and then realized after the fact that they couldn't get the kind of salaries they had hoped for (at least in part because of a much-worse-off job market than in 2004/5/6)?
I honestly am not certain.

[bikebum]

We took out loans when PAYE wasn't enacted, it wasn't on our original loan contract, and yet now they benefit from it.  Is that ethical?

I think that is OK too. I see it as if I lend you money and then later say you don't have to pay me back the full amount. It may be nice if you do anyway, but it's not unethical if you accept my revised offer.

Some people may say student loans are different because it's the government doing this with our tax money. My response would be: If you don't like that you should put the blame on the people responsible for creating the terms of the student loans, not the students.

[ontheupandup]

I believe that for Public Service Loan Forgiveness, the forgivee will not be taxed on the amount forgiven. (That is, if the program remains as it is written today). For other types of forgiveness, you are correct, the forgivee would be required to pay tax on the amount forgiven.

The OP is specifically referencing the Pay As You Earn Plan, which is different from Public Service Loan Forgiveness. The thorough investigation of the terms of ANY of these forgiveness options is critical, as there are very few (perhaps just one?) in which true, tax-free forgiveness is an option. PAYE and IBR are the two most widely available, and both would incur HUGELY ballooning principal+interest payments for which the payee would either suddenly become responsible if their income level changed, or would on which they would need to pay capital gains tax when this sum is "forgiven".

[Nords]

A question I have is, is it unethical to structure income such that it is minimized until the debt is forgiven?  Lots of ways to defer income legally....

First, I'm totally onboard with "gaming" a student loan.  The government (and private lenders) are plenty smart enough to make sure that loans are paid off, and if they want to provide loopholes then I'm ready to jump through them.

However the startup Ready For Zero has an interesting perspective:
http://blog.readyforzero.com/student-loan-forgiveness-a-solution-that-creates-new-problems/

... Pay As You Earn and the Public Service Loan Forgiveness program allow people to turn their debt payments into something they can actually manage versus going into total default.  But all good things can be put at risk if taken advantage of – in this case by colleges increasing their prices with the knowledge that more aid is available and students seeking higher degrees solely on the premise that they can get them for free or cheap.

In other words, the govt is encouraging risky behavior and moral hazard by making it easy for colleges to jack up the fees and easy for students to borrow more of the govt's money to pay for the tuition.

I'm not sure how effective a "forgiveness cap" would be.  However as forgiveness programs grow in popularity, I can forecast that the govt would eventually try to impose caps and to legislate longer periods to qualify for forgiveness.

So if you're going to use a loophole, use it as soon as you can...