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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FIer_Fox on January 09, 2017, 12:18:08 PM

Title: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 09, 2017, 12:18:08 PM
Hi all! I've recently found MMM and read thru all the blog posts. I've been lurking around the forum for a while, and I have a question I haven't seen addressed.

What do you all think about intentionally omitting student loans from your personal NW calculations, when you anticipate making the income based payments for 25 years (or 10 years for the public service folks)?

For some context, my wife and I are both in professional career tracks Attorney and psychology PhD student (eventual psychologist) with correspondingly large student loans. When all is said and done we will have about $400-$450k in federal student loans! (I know, I know...)

So the financial aid calculators estimate an annual salary of $600k+ to pay off those loans in the standard 10 year term. Needless to say, we don't anticipate making that much ever (let alone now), meaning that we will likely make the IBR payments for as long as needed to get the loan forgiveness.

Given this situation, what are everyone's thoughts on treating the loan payments exclusively as a recurring liability (think income taxes) and just budgeting for the payments, versus counting the actual balance against our net worth?

I know that not saying "I will pay off these loans with my super bad-assity" is kind of anti-MMM, but please go easy on my as this is my first post. (Though I understand and expect some face-punches.)
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 09, 2017, 12:24:34 PM
you're assuming that forgiveness will be around forever i'm not familiar with how it works b/c i dont use it but am personally opposed to its existence.  Why society should pay off your debt for education your received is beyond me... unless you're doing it for public service then i can see the added value.  but you can evaluate your own morality on it and it is a system that exists and i always say if its there use it. Just like the billionaires say the govt shoud close their tax holes but exploit them til they are gone.

personally i'd include it as a reminder to discuss with possible future children how not to go thru college and rack up debt.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: tarheeldan on January 09, 2017, 12:31:29 PM
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: I'm a red panda on January 09, 2017, 12:35:06 PM
Your net worth is pretty meaningless except to yourself.  (Well, sometimes angel investor programs make you have a minimum net worth to join...)

So do whatever makes sense for you.

For me- this makes very little sense.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: intirb on January 09, 2017, 12:43:35 PM
Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: notactiveanymore on January 09, 2017, 12:52:30 PM
Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.

THIS! Even if you are doing the IBR to forgiveness method, you need to simultaneously be thinking about how you will save up enough to pay off the lump sum IRS tax bill that will come when you reach the forgiveness point. If you've maximized your pre-tax savings to bring down your AGI, there is a darn good chance you won't even be servicing the interest with your IBR payments. That means if anything doesn't go to plan, you're going to have more debt to your name in 25 years than you have at graduation.

PSLF might be a better option, but keep an eye out because the BAR association just filed a lawsuit against the federal government after the first round of people eligible for PSLF have discovered that some of the jobs they thought were qualifying are now not being considered as such.

Finally, you should be able to get a PhD in psychology for free. You should be able to find a university where they will use you as slave labor to do their research and teaching and in return you get free tuition and a stipend. Do NOT pay for a PhD when you can absolutely get one paid for.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: hoodedfalcon on January 09, 2017, 12:56:38 PM
I am in a similar situation, though with less debt than you. I am 7 years into PSLF with 90K in federal SL debt and 30K in private SL debt. I still count them both in my net worth calculations, but I have also periodically (every 6 mos or so) calculated NW without them just for fun. Seeing the number makes me motivated. I just made it over the zero net worth mark, including the SLs, which is really cool! Also, I am going to plan on saving for the potential tax liability as well, so it's good to see it listed. I mean, think about how awesome it will be to see your NW skyrocket if/when they are forgiven! But as others have said, there are no guarantees. I am focusing on my private debt right now and hoping for PSLF on the federal, but I am very aware that it might never happen.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: intirb on January 09, 2017, 01:14:06 PM
Finally, you should be able to get a PhD in psychology for free. You should be able to find a university where they will use you as slave labor to do their research and teaching and in return you get free tuition and a stipend. Do NOT pay for a PhD when you can absolutely get one paid for.

Not to get too far off track, but for psychology it depends on the degree.  Since OP mentions "eventual psychologist", they might be getting a degree in clinical psychology, for which tuition+stipend arrangements are more rare.  If this is a research degree, though, then definitely.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 09, 2017, 01:27:11 PM
Thanks for all the feed back!

you're assuming that forgiveness will be around forever i'm not familiar with how it works b/c i dont use it but am personally opposed to its existence.  Why society should pay off your debt for education your received is beyond me... unless you're doing it for public service then i can see the added value.  but you can evaluate your own morality on it and it is a system that exists and i always say if its there use it. Just like the billionaires say the govt shoud close their tax holes but exploit them til they are gone.

personally i'd include it as a reminder to discuss with possible future children how not to go thru college and rack up debt.

Thanks for this, boarder. I definitely understand where you are coming form on this, and I don't want to get too bogged down in politics so soon after joining the forum (I'd like to get along for a little while, at least). Suffice it to say that, yes, I feel comfortable with utilizing the IBR student loan forgiveness. As a point of reference, I was also a supporter of the single payer healthcare options that were being campaigned for during this year's presidential election.

  • It's more accurate to include, especially considering that - as boarder42 said, forgiveness may go away
  • Interest? Especially if forgiveness goes away
  • Even if forgiveness remains true - If you include the balance in your NW (and keep track of this number), it may put psychological pressure on you to be more frugal

Good point. I agree that 25 years is a long time to count on anything influenced by political policy these days.

Your net worth is pretty meaningless except to yourself.  (Well, sometimes angel investor programs make you have a minimum net worth to join...)

So do whatever makes sense for you.

For me- this makes very little sense.

Yeah, I get that no one else really cares (there are no NW police, afaik). I'm just looking for people's input. So thank you.

Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.

Yes, I actually focused on tax law in lawschool, so I am aware of the potential taxes I'll be paying down the line. As you noted, I am keeping this in mind.

Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.

THIS! Even if you are doing the IBR to forgiveness method, you need to simultaneously be thinking about how you will save up enough to pay off the lump sum IRS tax bill that will come when you reach the forgiveness point. If you've maximized your pre-tax savings to bring down your AGI, there is a darn good chance you won't even be servicing the interest with your IBR payments. That means if anything doesn't go to plan, you're going to have more debt to your name in 25 years than you have at graduation.

PSLF might be a better option, but keep an eye out because the BAR association just filed a lawsuit against the federal government after the first round of people eligible for PSLF have discovered that some of the jobs they thought were qualifying are now not being considered as such.

Finally, you should be able to get a PhD in psychology for free. You should be able to find a university where they will use you as slave labor to do their research and teaching and in return you get free tuition and a stipend. Do NOT pay for a PhD when you can absolutely get one paid for.

Interesting tidbit about the PSLF lawsuit. I wasn't aware of that. As for the PhD, my wife is currently working on her master's, and we do hope for her to not pay out of pocket for the actual PhD. I've read a lot of horror stories about for profit grad schools and such.

I am in a similar situation, though with less debt than you. I am 7 years into PSLF with 90K in federal SL debt and 30K in private SL debt. I still count them both in my net worth calculations, but I have also periodically (every 6 mos or so) calculated NW without them just for fun. Seeing the number makes me motivated. I just made it over the zero net worth mark, including the SLs, which is really cool! Also, I am going to plan on saving for the potential tax liability as well, so it's good to see it listed. I mean, think about how awesome it will be to see your NW skyrocket if/when they are forgiven! But as others have said, there are no guarantees. I am focusing on my private debt right now and hoping for PSLF on the federal, but I am very aware that it might never happen.

Thank you very much for relating! It is encouraging to hear from someone who seems to know what I'm dealing with. Our NW numbers look so bleak now (and rightly so, we did borrow the money), but looking forward to turning the numbers around could be motivating to try and move the needle a little faster if possible.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 09, 2017, 01:31:34 PM
Not to get too far off track, but for psychology it depends on the degree.  Since OP mentions "eventual psychologist", they might be getting a degree in clinical psychology, for which tuition+stipend arrangements are more rare.  If this is a research degree, though, then definitely.

Yes, this is right on the money. Clinical psych programs also tend to be more competitive as well, but we are going into it with the intention to keep costs down as much as we can.

As of now, we have about $240k in student loans, which includes both our undergrad, my law school and about a 1/4th of DW's master's, so the $400-450k is more of a "worst case" scenario. (Thought our current $240k isn't exactly a pretty picture either.)
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 09, 2017, 01:34:58 PM
you have a law degree and are going into the private sector and want the country(thats in debt) to forgive your loans.  this doesnt make the same sense as a single payer health system which i support.  since i didnt rack up Student Loan debt should i be able to make interest only payments on a 400k house over the next 25 years an receive it debt free?

the avg starting salary for a law degree is 160k you should be able to afford to pay your own debt that you alone chose to accumulate.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: westtoeast on January 09, 2017, 01:49:25 PM
Hi! I have been wondering this myself. I am up for teacher forgiveness in 2 years and will not be using any of my current savings/investments to pay for those student loans. For these reasons I do not count my student loan debt towards my net worth.

If I was going to have to pay taxes on my forgiveness I would do:
total net worth - (student loan forgiveness amount X tax percentage) = actual net worth

Since it is just for us, I think excluding loans makes for a more inspiring number! With the debt it is just discouraging...
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Psychstache on January 09, 2017, 02:07:05 PM
I calculate it 4 different ways:

Textbook NW = include student loans and home equity

Forgiveness NW = ignore student loans, include home equity

Textbook 'Stache = include student loans, ignore home equity

Forgiveness 'Stache = ignore student loans and home equity

In the end all that matters is having the info you want to know, since like you and others have said it's ultimately a useless value. I'm a data nerd so the more data points and excel formulas the better. =)


Sent from my SM-G930V using Tapatalk
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 09, 2017, 02:17:56 PM
I am a fellow income-based repayment advocate. I intend to pay as little on my loans as possible over the course of 25 years and then suck up the tax bill.  Search through my post history for a lot of advice (or google "Gaming REPAYE"), but to summarize:

(1) You might want to look at REPAYE--they expanded eligibility and the payments should be smaller;
(2) Reduce AGI in every way possible so as to pay as little towards your loans as possible (401k, HSA, tIRA, etc.); and
(3) Come up with some savings to pay the tax bomb.

I personally calculate my hypothetical tax liability when the loans are forgiven. My loans are about $150k now and I expect my tax liability to be in the $34k range, and it is this $34k that goes onto my "liabilities" column. I put a lot of thought into this, but this seems like the only correct way to do it because the actual student loan balance is a fake number if you are on an income-based repayment plan.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 09, 2017, 02:20:05 PM
you have a law degree and are going into the private sector and want the country(thats in debt) to forgive your loans.  this doesnt make the same sense as a single payer health system which i support.  since i didnt rack up Student Loan debt should i be able to make interest only payments on a 400k house over the next 25 years an receive it debt free?

the avg starting salary for a law degree is 160k you should be able to afford to pay your own debt that you alone chose to accumulate.

OP: learn from my experience in other threads--don't fall into boarder's political rants.  You are repaying the loan in accordance with the terms it was given to you. Nothing to feel bad about. End of story.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: WyomingGuy on January 09, 2017, 02:53:42 PM
you have a law degree and are going into the private sector and want the country(thats in debt) to forgive your loans.  this doesnt make the same sense as a single payer health system which i support.  since i didnt rack up Student Loan debt should i be able to make interest only payments on a 400k house over the next 25 years an receive it debt free?

the avg starting salary for a law degree is 160k you should be able to afford to pay your own debt that you alone chose to accumulate.

OP: learn from my experience in other threads--don't fall into boarder's political rants.  You are repaying the loan in accordance with the terms it was given to you. Nothing to feel bad about. End of story.

It isn't entirely clear to me that "forgiveness" is "in accordance with the terms" of the original loans vice the result of later-enacted laws/policies that are subject to change by federal policymakers. Also see: https://www.brookings.edu/research/the-coming-public-service-loan-forgiveness-bonanza/ (and the Brookings Institute leans towards the left side of the political spectrum). I stand ready to be corrected. I paid off my student loans decades ago. Perhaps current loans have "forgiveness" provisions.

On a financial forum, I also believe it is prudent for people to be reminded: (1) not to take on too much student loan debt; (2) that he/she should be responsible for his/her debt; and (3) that loan forgiveness in this context is subject to change (unless it is written into the terms of a specific loan).  See again the Brookings Institution piece above about the looming "time bomb" of too much forgiven student loan debt. So I don't view such positions as "political rants." I instead view them as prudent judgments. If my children asked me whether it was prudent to structure one's financial life around taking on a ton of student loan debt then count on Uncle Sam to stand ready to fulfill its forgiveness promises in, say, 2025, my answer would be "don't do it" and such advice would not be a "rant" but instead the words of a loving parent.

I also view societal debt here the same way some folks view climate change. I don't think it is right for one generation to foist its debts onto the next. Again, that isn't a political rant. It is merely pointing out the reality of the federal government's current fiscal situation.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 09, 2017, 03:05:55 PM
It isn't entirely clear to me that "forgiveness" is "in accordance with the terms" of the original loans vice the result of later-enacted laws/policies that are subject to change by federal policymakers. Also see: https://www.brookings.edu/research/the-coming-public-service-loan-forgiveness-bonanza/ (and the Brookings Institute leans towards the left side of the political spectrum). I stand ready to be corrected. I paid off my student loans decades ago. Perhaps current loans have "forgiveness" provisions.

On a financial forum, I also believe it is prudent for people to be reminded: (1) not to take on too much student loan debt; (2) that he/she should be responsible for his/her debt; and (3) that loan forgiveness in this context is subject to change (unless it is written into the terms of a specific loan).  See again the Brookings Institution piece above about the looming "time bomb" of too much forgiven student loan debt. So I don't view such positions as "political rants." I instead view them as prudent judgments. If my children asked me whether it was prudent to structure one's financial life around taking on a ton of student loan debt then count on Uncle Sam to stand ready to fulfill its forgiveness promises in, say, 2025, my answer would be "don't do it" and such advice would not be a "rant" but instead the words of a loving parent.

I also view societal debt here the same way some folks view climate change. I don't think it is right for one generation to foist its debts onto the next. Again, that isn't a political rant. It is merely pointing out the reality of the federal government's current fiscal situation.

The terms of the loan anticipate present and future income-based repayment options.

As for societal concerns and student loans, it's all a bunch of bullshit. My dad's law school tuition was $1,500 per year.  Mine was $28,500. How did that happen? In large part because state legislatures gutted funding for higher education.

So now instead of paying higher state taxes to subsidize public education (which is a noble good), we have shifted that burden to the federal level through loan forgiveness programs. There is almost no net difference to the taxpayers other than how we are subsidizing higher education (front end vs. back end).
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Fishindude on January 09, 2017, 03:07:38 PM
Your personal financial statement is a snapshot of your finances at the time you prepare it. If you have debt such as student loans it should be shown.  Until it is actually forgiven it is a debt or liability on your statement.   I too find it pretty disgusting that someone would take on this kind of debt with the intention of walking away from it leaving others holding the bag. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Proud Foot on January 09, 2017, 03:14:43 PM
You are an attorney.  What is your employment situation?  I would think that on an attorney's salary you should be able to pay off those student loans. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 09, 2017, 03:22:59 PM
OP--As I said a couple posts ago, ignore the student loan police. They come out with their pitchforks and torches about every 2-3 months here and you might get the brunt of it. Who cares. You're paying in accordance with the contract, you've done the math, and you're doing what's best for you. Live it up. I'm out, only because I've debated this ad nauseam and can't do it anymore. PM me with any questions.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 09, 2017, 03:39:31 PM
Boarder, thank you for the input. Again, I don't want to debate the politics of whether IBR should exist. I plan to payback in accordance with the IBR program, because I qualify for it and feel comfortable using it.

Just one thing, as for the "average" attorney salary being $160k, that is simply not accurate. In actuality, conservative estimates such as Payscale.com peg median attorney salaries in the range of $46,517 – $152,887. In my case, I am making about $80k (household) and in a high COL area (SoCal), so I'm not exactly rolling in it. 

WesttoEast and Psychstache, thank you for sharing your methods. This is exactly what I was looking for.

ReadySetMillionaire, thank you for the advice and for articulating the issues regarding state vs federal education funding. As for the IBR and REPAYE stuff, I will definitely look for those posts of yours! Super helpful.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 09, 2017, 03:44:50 PM
You are an attorney.  What is your employment situation?  I would think that on an attorney's salary you should be able to pay off those student loans.

Employed full time, household is $80k/yr. Currently living in SoCal which is fairly HCOL.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: khangaroo on January 09, 2017, 04:00:40 PM
I have a very traditional approach for the net worth calculation: Assets - Liabilities = Net Worth

Unless you have a guaranteed letter that the US Government will pay off your loan in 25 years then the student loan should be included in your net worth calculations. Also, I believe they have some strict requirements as far as having to make consecutive payments so not quite sure what happens if you miss/cannot make a payment - there's a lot of life that happens in 25 years.

But, as some members have stated, your net worth calculation only matters to you so it just depends on how much you want to bend the rules to make your life look rosier.

I personally cannot imagine paying student loans for 25 years... that's a huge elephant to keep in your life. I would recommend reading The Total Money Makeover by Dave Ramsey if you haven't already because you've dug yourself quite a hole with your student loans and you need to work yourself out of this mess.

The borrower is slave to the lender. Proverbs 22-7
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Kakashi on January 09, 2017, 04:10:03 PM
Alright then.  Why not leave your mortgage off.  Why don't we just inflate the net worth by $500K because that's what you expect your investments to be in 10 years. 

Ultimately, a net worth is nothing but a personal tracker.  So you can do whatever you want.  But leaving it off makes absolutely no real sense other than to give you a higher number to feel better about.  You take it away from networth calculations WHEN it gets forgiven, not in expectant of it getting forgiven.  Otherwise, it's the same concept as inflating your assets to where they are in 10 years rather than where they are now. 



Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: iris lily on January 09, 2017, 07:50:11 PM
Alright then.  Why not leave your mortgage off.  Why don't we just inflate the net worth by $500K because that's what you expect your investments to be in 10 years. 

Ultimately, a net worth is nothing but a personal tracker.  So you can do whatever you want.  But leaving it off makes absolutely no real sense other than to give you a higher number to feel better about.  You take it away from networth calculations WHEN it gets forgiven, not in expectant of it getting forgiven.  Otherwise, it's the same concept as inflating your assets to where they are in 10 years rather than where they are now.

Haha, yes. There are lawyerly ways to wiggle out of counting a liability as s liability and the OP can fnd ways to do just that, whatever.

But here is another way to look at it, OP: what happens to your debt when you die? DH and I count only the assets that will exist the day after our death. Pensions, annuities and etc. dissapear when we die, so we dont conty them as assets even though they provide income.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 10, 2017, 07:45:56 AM
Alright then.  Why not leave your mortgage off.  Why don't we just inflate the net worth by $500K because that's what you expect your investments to be in 10 years. 

Ultimately, a net worth is nothing but a personal tracker.  So you can do whatever you want.  But leaving it off makes absolutely no real sense other than to give you a higher number to feel better about.  You take it away from networth calculations WHEN it gets forgiven, not in expectant of it getting forgiven.  Otherwise, it's the same concept as inflating your assets to where they are in 10 years rather than where they are now.

OP, this is a ridiculous analogy and I encourage you not to follow this.

The debt will be forgiven if you stick to your plan.  Any change to REPAYE/IBR/etc. will grandfather in current participants because the political backlash for not doing so would be too severe for politicians to survive.

Posters in this thread also do not understand that you will, in effect, pay about the same towards your loans (25 years of payments plus tax liability). One could argue TMV, but you can make that argument towards any long term loan.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: dcozad999 on January 10, 2017, 10:40:35 AM
Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.

THIS! Even if you are doing the IBR to forgiveness method, you need to simultaneously be thinking about how you will save up enough to pay off the lump sum IRS tax bill that will come when you reach the forgiveness point. If you've maximized your pre-tax savings to bring down your AGI, there is a darn good chance you won't even be servicing the interest with your IBR payments. That means if anything doesn't go to plan, you're going to have more debt to your name in 25 years than you have at graduation.

PSLF might be a better option, but keep an eye out because the BAR association just filed a lawsuit against the federal government after the first round of people eligible for PSLF have discovered that some of the jobs they thought were qualifying are now not being considered as such.

Finally, you should be able to get a PhD in psychology for free. You should be able to find a university where they will use you as slave labor to do their research and teaching and in return you get free tuition and a stipend. Do NOT pay for a PhD when you can absolutely get one paid for.



It's not easy to get accepted into a PhD psychology program.  There are very limited spots each year and many many candidates with 4.0 GPAs and lots of research experience.

Many go for The PsyD which has hardly any scholarships and is very expensive. Especially considering the average earning potential.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: notactiveanymore on January 10, 2017, 10:43:24 AM
Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.

THIS! Even if you are doing the IBR to forgiveness method, you need to simultaneously be thinking about how you will save up enough to pay off the lump sum IRS tax bill that will come when you reach the forgiveness point. If you've maximized your pre-tax savings to bring down your AGI, there is a darn good chance you won't even be servicing the interest with your IBR payments. That means if anything doesn't go to plan, you're going to have more debt to your name in 25 years than you have at graduation.

PSLF might be a better option, but keep an eye out because the BAR association just filed a lawsuit against the federal government after the first round of people eligible for PSLF have discovered that some of the jobs they thought were qualifying are now not being considered as such.

Finally, you should be able to get a PhD in psychology for free. You should be able to find a university where they will use you as slave labor to do their research and teaching and in return you get free tuition and a stipend. Do NOT pay for a PhD when you can absolutely get one paid for.



It's not easy to get accepted into a PhD psychology program.  There are very limited spots each year and many many candidates with 4.0 GPAs and lots of research experience.

Many go for The PsyD which has hardly any scholarships and is very expensive. Especially considering the average earning potential.

I live in a university town and know 3 people currently getting a free PhD in psychology. At least one of them plans to go into practice, not research. I know a 4th person who just finished their psychology PhD for free. She's teaching as a post-doc for another couple years, but plans to go into practice after.

Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: iris lily on January 10, 2017, 10:51:56 AM
Keep in mind that when your student loan gets forgiven, you will need to pay taxes on that forgiven amount.  So in the very least, you should keep an estimate in your "net worth" of what you anticipate your income tax bill will be when the forgiveness comes.

THIS! Even if you are doing the IBR to forgiveness method, you need to simultaneously be thinking about how you will save up enough to pay off the lump sum IRS tax bill that will come when you reach the forgiveness point. If you've maximized your pre-tax savings to bring down your AGI, there is a darn good chance you won't even be servicing the interest with your IBR payments. That means if anything doesn't go to plan, you're going to have more debt to your name in 25 years than you have at graduation.

PSLF might be a better option, but keep an eye out because the BAR association just filed a lawsuit against the federal government after the first round of people eligible for PSLF have discovered that some of the jobs they thought were qualifying are now not being considered as such.

Finally, you should be able to get a PhD in psychology for free. You should be able to find a university where they will use you as slave labor to do their research and teaching and in return you get free tuition and a stipend. Do NOT pay for a PhD when you can absolutely get one paid for.



It's not easy to get accepted into a PhD psychology program.  There are very limited spots each year and many many candidates with 4.0 GPAs and lots of research experience.

Many go for The PsyD which has hardly any scholarships and is very expensive. Especially considering the average earning potential.

What IS the earnings  potential? Curious.
I read different versions includ Ng therapists,in privatenpractice who make 6 figures.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 10, 2017, 11:05:44 AM
I started this thread to get input about the idea of not including student loans in NW due to IBR. It seems like I was able to spark some discussion about that, and the general consensus is that I should include the student loan liability even in this circumstance. I appreciate the feedback on that and, for the record, I DO include my student loan balance (the actual, and entire balance) in my NW calculations.

What I did not start this thread for, but managed to receive was 1) moral judgments about my participation in the IBR or REPAYE programs, and 2) generalizations, assumptions, and snarky comments about being an attorney.

you have a law degree and are going into the private sector and want the country(thats in debt) to forgive your loans….the avg starting salary for a law degree is 160k you should be able to afford to pay your own debt that you alone chose to accumulate.

Okay, so I can’t blame people for the society-wide misconception about attorney salaries, but the bitterness in the face of unverified assumptions is pretty off-putting.

Haha, yes. There are lawyerly ways to wiggle out of counting a liability as s liability and the OP can fnd ways to do just that, whatever.

Ah, yes. The old “shyster attorney” trope. I understand that people don’t like lawyers, but come on. I ask for thoughts and opinions about NW calculations and now I’m trying to “lawyerly wiggle” out of things? What if I said I was a farmer and this was some sort of income based repayment for agricultural loans, would people still be making these types of comments?

Frankly, I expected better from the MMM crowd. Face punches about the debt level, sure. Preachy comments about how I should have known better than to borrow the money, unhelpful but totally expected. But all this morality BS and thinly veiled ad hominem attacks directed at me because of my profession, is absurd and disappointing.

Thank you to everyone who took the time to consider my posts and give helpful feedback.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 10, 2017, 11:15:46 AM
It's not easy to get accepted into a PhD psychology program.  There are very limited spots each year and many many candidates with 4.0 GPAs and lots of research experience.

Many go for The PsyD which has hardly any scholarships and is very expensive. Especially considering the average earning potential.

You are absolutely right. In fact, DW is considering PsyD programs as well, which is one of the main reasons we are considering taking on additional loans, even though we would obviously prefer for her to get into a PhD program with tuition + stipend.

I live in a university town and know 3 people currently getting a free PhD in psychology. At least one of them plans to go into practice, not research. I know a 4th person who just finished their psychology PhD for free. She's teaching as a post-doc for another couple years, but plans to go into practice after.

Yes, these programs are out there and DW is trying to get into one of these type of programs.

What IS the earnings  potential? Curious.
I read different versions includ Ng therapists,in privatenpractice who make 6 figures.

In our case, DW is looking to enter the field as a school psychologist. In our area, that means potential salaries in the $60-$80k range. Yes, I realize that will bump our income up (please, let’s not get into the IBR discussion again). It also means that there is a good chance she will qualify for the PSLF which is a 10 year service based loan repayment/forgiveness program.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: intirb on January 10, 2017, 12:20:03 PM
If I were in your position, I'd calculate my "net worth" in the way that's most meaningful to achieving FI/RE.  Assuming you feel reasonably confident that your forgiveness will be available to you in 25 years or so, then you only need to take those student loans into account with: a) anticipated eventual tax bill and b) anticipated IBR payments in retirement.  It's also worth it to take into consideration: when you are earning two incomes, will you still qualify for IBR?

If your plan is to fully retire before your debt is forgiven, I'd be super worried about how my retirement would fare if debt forgiveness were no longer offered.  In the very least, as a safety net, your FI/RE "number" should probably include some room for ongoing student loan payments in case forgiveness never materializes.

And if your SO is the one going to graduate school, be sure to take advantage of any and all perks of being a student to keep your costs down as low as possible.  FWIW, I'm a graduate student who had student loans coming in from undergrad but managed to get debt free by living very frugally and taking advantage of everything my school offers to help students out.  My school has subsidized graduate housing, with opportunities for free housing if you RA, and a substantial bus/shuttle transportation system.  That means my housing and transportation costs are near zero.  Usually significant others are included in these perks - and if you are shopping around for a school, it might be worth it to consider COL as you compare opportunities.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 12, 2017, 07:42:44 AM
you have a law degree and are going into the private sector and want the country(thats in debt) to forgive your loans.  this doesnt make the same sense as a single payer health system which i support.  since i didnt rack up Student Loan debt should i be able to make interest only payments on a 400k house over the next 25 years an receive it debt free?

the avg starting salary for a law degree is 160k you should be able to afford to pay your own debt that you alone chose to accumulate.


OP: learn from my experience in other threads--don't fall into boarder's political rants.  You are repaying the loan in accordance with the terms it was given to you. Nothing to feel bad about. End of story.

Boarder's opinion is not a political one at all, its a moral one. Just because something is legal does not make it right. Morally it is wrong to assume a debt you dont intend to pay, its also known as stealing. If you want to back your argument up with the fact that its right because its legal, then I could argue about the numerous times in history things were flat out wrong, but still legal (slavery, not allowing women to vote etc..).

Taking on a loan and expecting others to pay it off for you is the same thing as stealing. There is no way around it. It's not a democratic/republican issue, its just wrong.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 13, 2017, 09:15:47 AM
It isn't entirely clear to me that "forgiveness" is "in accordance with the terms" of the original loans vice the result of later-enacted laws/policies that are subject to change by federal policymakers. Also see: https://www.brookings.edu/research/the-coming-public-service-loan-forgiveness-bonanza/ (and the Brookings Institute leans towards the left side of the political spectrum). I stand ready to be corrected. I paid off my student loans decades ago. Perhaps current loans have "forgiveness" provisions.

On a financial forum, I also believe it is prudent for people to be reminded: (1) not to take on too much student loan debt; (2) that he/she should be responsible for his/her debt; and (3) that loan forgiveness in this context is subject to change (unless it is written into the terms of a specific loan).  See again the Brookings Institution piece above about the looming "time bomb" of too much forgiven student loan debt. So I don't view such positions as "political rants." I instead view them as prudent judgments. If my children asked me whether it was prudent to structure one's financial life around taking on a ton of student loan debt then count on Uncle Sam to stand ready to fulfill its forgiveness promises in, say, 2025, my answer would be "don't do it" and such advice would not be a "rant" but instead the words of a loving parent.

I also view societal debt here the same way some folks view climate change. I don't think it is right for one generation to foist its debts onto the next. Again, that isn't a political rant. It is merely pointing out the reality of the federal government's current fiscal situation.

The terms of the loan anticipate present and future income-based repayment options.

As for societal concerns and student loans, it's all a bunch of bullshit. My dad's law school tuition was $1,500 per year.  Mine was $28,500. How did that happen? In large part because state legislatures gutted funding for higher education.

So now instead of paying higher state taxes to subsidize public education (which is a noble good), we have shifted that burden to the federal level through loan forgiveness programs. There is almost no net difference to the taxpayers other than how we are subsidizing higher education (front end vs. back end).

Why didn't you pick a cheaper law school or do something else for a living - why is it a university's responsibility to provide you with an education at the price your dad paid for it?  Was it even at the same school?
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 13, 2017, 09:34:35 AM
Boarder's opinion is not a political one at all, its a moral one. Just because something is legal does not make it right. Morally it is wrong to assume a debt you dont intend to pay, its also known as stealing. If you want to back your argument up with the fact that its right because its legal, then I could argue about the numerous times in history things were flat out wrong, but still legal (slavery, not allowing women to vote etc..).

Taking on a loan and expecting others to pay it off for you is the same thing as stealing. There is no way around it. It's not a democratic/republican issue, its just wrong.

Why didn't you pick a cheaper law school or do something else for a living - why is it a university's responsibility to provide you with an education at the price your dad paid for it?  Was it even at the same school?

Sorry guys, not falling for moral debate this time. Cheers to you and happy new year.

(https://www.stayathomemum.com.au/wp-content/uploads/2013/10/tantrum.jpg)
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 13, 2017, 09:48:53 AM
as i stated above if its their i'd use it however i disagree with it being there and if i ever got to vote on such a matter i would vote against it.  but the system is what it is. 

i wouldnt intentionally run up my debt to 400k as stated in the OP b/c it sounds like you dont have that much now.. there should be a more cost effective way to gain the say knowledge and skills/degree without hanging the burden on the tax payers.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 13, 2017, 10:45:07 AM
Boarder's opinion is not a political one at all, its a moral one. Just because something is legal does not make it right. Morally it is wrong to assume a debt you dont intend to pay, its also known as stealing. If you want to back your argument up with the fact that its right because its legal, then I could argue about the numerous times in history things were flat out wrong, but still legal (slavery, not allowing women to vote etc..).

Taking on a loan and expecting others to pay it off for you is the same thing as stealing. There is no way around it. It's not a democratic/republican issue, its just wrong.

Why didn't you pick a cheaper law school or do something else for a living - why is it a university's responsibility to provide you with an education at the price your dad paid for it?  Was it even at the same school?

Sorry guys, not falling for moral debate this time. Cheers to you and happy new year.

(https://www.stayathomemum.com.au/wp-content/uploads/2013/10/tantrum.jpg)

Haha so you're just immature. That makes alot more sense. Poster child for the reason millennials are known as the "entitled generation."

Taking on a debt that you fully dont intent to pay, to retire early and leave someone else the bill is completely unethical and wrong. There is no debate in the matter, no rational person would disagree with that, you are just choosing to to steal.

The income based repayment plans are meant for people who genuinely cannot make enough to repay the loan. They borrowed too much unintentionally and need help. What you are doing is the complete opposite, you can pay off the loan and do have the ability to stand by your promise to pay it off, you are just choosing to have someone else do it for you, so you can work less. Well done sir, you are unprincipled.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 13, 2017, 11:13:21 AM
Boarder's opinion is not a political one at all, its a moral one. Just because something is legal does not make it right. Morally it is wrong to assume a debt you dont intend to pay, its also known as stealing. If you want to back your argument up with the fact that its right because its legal, then I could argue about the numerous times in history things were flat out wrong, but still legal (slavery, not allowing women to vote etc..).

Taking on a loan and expecting others to pay it off for you is the same thing as stealing. There is no way around it. It's not a democratic/republican issue, its just wrong.

Why didn't you pick a cheaper law school or do something else for a living - why is it a university's responsibility to provide you with an education at the price your dad paid for it?  Was it even at the same school?

snip

Haha so you're just immature. That makes alot more sense. Poster child for the reason millennials are known as the "entitled generation."

Taking on a debt that you fully dont intent to pay, to retire early and leave someone else the bill is completely unethical and wrong. There is no debate in the matter, no rational person would disagree with that, you are just choosing to to steal.

The income based repayment plans are meant for people who genuinely cannot make enough to repay the loan. They borrowed too much unintentionally and need help. What you are doing is the complete opposite, you can pay off the loan and do have the ability to stand by your promise to pay it off, you are just choosing to have someone else do it for you, so you can work less. Well done sir, you are unprincipled.

I can see if you ran up the debt and the system is there so use it.  but if you are on this site already and dont have the debt you should be able to figure out a better way.

saying dont use the system when its there doesnt make sense.  you dont see warren buffett paying extra taxes just b/c he morally thinks he should.  He is very outspoken it should be changed though ... i guess that would be the difference here.  RSM doesnt see anything wrong with the system where buffett sees the issue publicly states it and states he will gladly use it til it changes.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Ryland on January 13, 2017, 11:35:27 AM
Glad you're reading MMM. You are in the right place! And you can do this! Especially being so smart, which such epic degrees.

The biggest thing you're assuming is that you will be able forever to be dissolved of those loans. I'm not an expert here by any means, but that is a worthy risk to consider.

With those degrees, you guys may be able (may not want, but be able) to pull in around $100k/yr each. If you did that you would be out of those loans in about 4 years, which still gives you a luxurious $50k/year lifestyle.

I'm always hesitant to brush loans under the rug or not consider them as part of a net worth. The reason being is one day you may have a horrible surprise when you decide that they actually are part of your net worth.

It's better to be surprised that the loans are gone, rather than that they are sticking around. This view point is part of Stoicism's "negative visualization." You've probably already read MMM's post on it, but I'll add that one and a Ryan Holiday post (epic guy) just in case.

http://www.mrmoneymustache.com/2011/10/02/what-is-stoicism-and-how-can-it-turn-your-life-to-solid-gold/
http://ryanholiday.net/practice-the-stoic-art-of-negative-visualization/

Recommend paying the loans off like some badass mo-fos first. Trying to get the write off part second. Good luck! Let us know where this goes!
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 13, 2017, 11:38:08 AM
Haha so you're just immature. That makes alot more sense. Poster child for the reason millennials are known as the "entitled generation."

Taking on a debt that you fully dont intent to pay, to retire early and leave someone else the bill is completely unethical and wrong. There is no debate in the matter, no rational person would disagree with that, you are just choosing to to steal.

The income based repayment plans are meant for people who genuinely cannot make enough to repay the loan. They borrowed too much unintentionally and need help. What you are doing is the complete opposite, you can pay off the loan and do have the ability to stand by your promise to pay it off, you are just choosing to have someone else do it for you, so you can work less. Well done sir, you are unprincipled.

Here comes the student loan police!!! Watch out everyone!!!

(http://cdn.skim.gs/images/c_fill,dpr_1.0,h_391,w_695/hn47eiyr8bbjcvzrmrpb/baby-names-in-honor-of-famous-police-officers)
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 13, 2017, 11:51:54 AM
Boarder's opinion is not a political one at all, its a moral one. Just because something is legal does not make it right. Morally it is wrong to assume a debt you dont intend to pay, its also known as stealing. If you want to back your argument up with the fact that its right because its legal, then I could argue about the numerous times in history things were flat out wrong, but still legal (slavery, not allowing women to vote etc..).

Taking on a loan and expecting others to pay it off for you is the same thing as stealing. There is no way around it. It's not a democratic/republican issue, its just wrong.

Why didn't you pick a cheaper law school or do something else for a living - why is it a university's responsibility to provide you with an education at the price your dad paid for it?  Was it even at the same school?

snip

Haha so you're just immature. That makes alot more sense. Poster child for the reason millennials are known as the "entitled generation."

Taking on a debt that you fully dont intent to pay, to retire early and leave someone else the bill is completely unethical and wrong. There is no debate in the matter, no rational person would disagree with that, you are just choosing to to steal.

The income based repayment plans are meant for people who genuinely cannot make enough to repay the loan. They borrowed too much unintentionally and need help. What you are doing is the complete opposite, you can pay off the loan and do have the ability to stand by your promise to pay it off, you are just choosing to have someone else do it for you, so you can work less. Well done sir, you are unprincipled.

I can see if you ran up the debt and the system is there so use it.  but if you are on this site already and dont have the debt you should be able to figure out a better way.

saying dont use the system when its there doesnt make sense.  you dont see warren buffett paying extra taxes just b/c he morally thinks he should.  He is very outspoken it should be changed though ... i guess that would be the difference here.  RSM doesnt see anything wrong with the system where buffett sees the issue publicly states it and states he will gladly use it til it changes.

Using a system that is in place is not wrong, but intentionally taking on the debt, knowing that you are going to have the debt and planning on not paying it is wrong. Warren Buffet uses the laws to pay the least amount of tax possible, he did not say"Im going to pay 30% tax, and then later on only pay 15%." When you sign a loan document you are accepting a liability for a dollar amount.

If your rational is that if its legal its ok, it would be the same as going and maxing all of your credit cards and then just filing for bankruptcy so you dont have to pay them. Except its not a credit card company that has to fit the bill its your neighbors and others on the forum.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 13, 2017, 11:52:29 AM
Haha so you're just immature. That makes alot more sense. Poster child for the reason millennials are known as the "entitled generation."

Taking on a debt that you fully dont intent to pay, to retire early and leave someone else the bill is completely unethical and wrong. There is no debate in the matter, no rational person would disagree with that, you are just choosing to to steal.

The income based repayment plans are meant for people who genuinely cannot make enough to repay the loan. They borrowed too much unintentionally and need help. What you are doing is the complete opposite, you can pay off the loan and do have the ability to stand by your promise to pay it off, you are just choosing to have someone else do it for you, so you can work less. Well done sir, you are unprincipled.



Here comes the student loan police!!! Watch out everyone!!!

(http://cdn.skim.gs/images/c_fill,dpr_1.0,h_391,w_695/hn47eiyr8bbjcvzrmrpb/baby-names-in-honor-of-famous-police-officers)

Thank you for continuing to make my point.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: SimpleCycle on January 13, 2017, 12:02:33 PM
I know we've veered off the original topic, but I would count them.  Circumstances change, laws change, you could conceivably be on the hook for your full amount of debt and I would want that to be part of my math.

I would be very skeptical that the 25 year IBR forgiveness will actually survive until you reach forgiveness, especially in its current form.  This program is popular with borrowers, but the general public doesn't really care and I don't think there would be much of a fight to keep it if it was on the chopping block.

I am pretty ethically neutral on loan forgiveness programs.  Sure, borrowers can take on debt they know they can't afford to pay, but institutions also know these programs exist and feel comfortable setting prices ridiculously high knowing their students can borrow at semi-favorable terms.  The government makes money on student loans, this is hardly a "taxpayers are left holding the bag" situation. (And yes, I know the CBO and GAO differ on the profit vs. loss, but the official methodology has them making money)
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 13, 2017, 12:10:05 PM
Boarder's opinion is not a political one at all, its a moral one. Just because something is legal does not make it right. Morally it is wrong to assume a debt you dont intend to pay, its also known as stealing. If you want to back your argument up with the fact that its right because its legal, then I could argue about the numerous times in history things were flat out wrong, but still legal (slavery, not allowing women to vote etc..).

Taking on a loan and expecting others to pay it off for you is the same thing as stealing. There is no way around it. It's not a democratic/republican issue, its just wrong.

Why didn't you pick a cheaper law school or do something else for a living - why is it a university's responsibility to provide you with an education at the price your dad paid for it?  Was it even at the same school?

snip

Haha so you're just immature. That makes alot more sense. Poster child for the reason millennials are known as the "entitled generation."

Taking on a debt that you fully dont intent to pay, to retire early and leave someone else the bill is completely unethical and wrong. There is no debate in the matter, no rational person would disagree with that, you are just choosing to to steal.

The income based repayment plans are meant for people who genuinely cannot make enough to repay the loan. They borrowed too much unintentionally and need help. What you are doing is the complete opposite, you can pay off the loan and do have the ability to stand by your promise to pay it off, you are just choosing to have someone else do it for you, so you can work less. Well done sir, you are unprincipled.

I can see if you ran up the debt and the system is there so use it.  but if you are on this site already and dont have the debt you should be able to figure out a better way.

saying dont use the system when its there doesnt make sense.  you dont see warren buffett paying extra taxes just b/c he morally thinks he should.  He is very outspoken it should be changed though ... i guess that would be the difference here.  RSM doesnt see anything wrong with the system where buffett sees the issue publicly states it and states he will gladly use it til it changes.

Using a system that is in place is not wrong, but intentionally taking on the debt, knowing that you are going to have the debt and planning on not paying it is wrong. Warren Buffet uses the laws to pay the least amount of tax possible, he did not say"Im going to pay 30% tax, and then later on only pay 15%." When you sign a loan document you are accepting a liability for a dollar amount.

If your rational is that if its legal its ok, it would be the same as going and maxing all of your credit cards and then just filing for bankruptcy so you dont have to pay them. Except its not a credit card company that has to fit the bill its your neighbors and others on the forum.

correct i agree see above where i said to find a better way if the debt werent there.  i believe we are on the same page here. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 13, 2017, 12:16:37 PM
Thank you for continuing to make my point.

I dispute the fact that I intentionally went into debt to not repay my loans--nothing could be further from the truth.  But rather than re-hash everything you and I have debated in other threads, I'll just leave one of the all time great posts on student loans here:

... I agree that loan forgiveness programs present a moral hazard to young adults and it in unethical to take out student loans that you don't intent to pay in full - so deciding to invest because unpaid student loan will be forgiven in 25 years would be wrong ...

Fraudulently securing a loan is obviously wrong. However, that abstract claim simply has no relevance to the morality of income-based repayment plans. The Master Promissory Note (http://www.direct.ed.gov/pubs/dlmpn.pdf) ("Note") for most federal student loans explicitly says that a borrower has the option to repay under either the standard repayment plan or a variety of alternative plans including the "Pay As You Earn Plan". Note *7-8. The lender also reserves the right to offer any other payment plan at its discretion, such as plans that did not yet exist when the Note was signed. Note *2 ("ED will provide you with a choice of repayment plans."). Although we do not know what precise version of the Note was signed by the original poster or by user "ReadySetMillionaire", I think we can safely assume that past versions of the Note contained similar language.

In other words -- as ReadySetMillionaire has already claimed -- taking out a federal loan under the Note with the intent of paying it back under an alternative payment plan is not fraud because (among other reasons) it is expressly permitted by the Note.

This forum has seen its fair share of people imposing bizarre moral requirements on top of legislative programs (http://forum.mrmoneymustache.com/welcome-to-the-forum/am-i-crazy-not-to-work-8-more-hours-a-week-for-health-insurance/msg892303/#msg892303), but asking somebody to gratuitously pay more than is owed under a promissory note is a new level of absurdity. This is literally akin to demanding that bond issuers make larger interest payments to you because of inflation (http://forum.mrmoneymustache.com/welcome-to-the-forum/a-common-error-when-calculating-your-target-amount/msg884695/#msg884695). Do you believe that it is unethical for a corporation to pay 2% on a 2% bond, rather than voluntarily increasing the interest payments each year? If you loan your friend $100 at an agreed rate of 0% interest, do you believe it it unethical for them to pay you back with anything less than 3% interest?

The terms of the Note (and applicable law) govern whether somebody is in default of the Note. Your idiosyncratic views of personal morality are irrelevant and wrong.

As for mortgage lending, the lender is presumably free to ask about the balance of the person's outstanding liabilities and to take that information into account in the decision of whether to extend credit. A lender is not restricted to the four corners of a person's credit report, but can (and does) ask whatever it wants, subject only to applicable anti-discrimination laws and other legal requirements. If a lender fails to ask for relevant information and makes a bad result as a result, that is entirely the lender's fault. There is no obligation to give your entire life history to a mortgage lender. Generally speaking, you are required only to truthfully provide the information that they actually ask for.

I conclude that there are no moral issues implicated by this thread. Whether the original poster should or could purchase a house is a separate question.

In closing, I note that many respected long-time members of this website frequently and openly confess to engaging in literal fraud (http://forum.mrmoneymustache.com/ask-a-mustachian/tiffany-bracelets-and-dom-perignon-how-to-sell-this-shit/msg895792/#msg895792) and do not receive the kind of vitriol that people typically post in threads about benefit programs; if anything, such confessed fraudsters receive adulation and praise. Why is it that forum members here approve of tax fraud, but have a problem with honest taxpayers complying with all the terms of their obligations?
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 13, 2017, 01:26:08 PM
Thank you for continuing to make my point.

I dispute the fact that I intentionally went into debt to not repay my loans--nothing could be further from the truth.  But rather than re-hash everything you and I have debated in other threads, I'll just leave one of the all time great posts on student loans here:

... I agree that loan forgiveness programs present a moral hazard to young adults and it in unethical to take out student loans that you don't intent to pay in full - so deciding to invest because unpaid student loan will be forgiven in 25 years would be wrong ...

Fraudulently securing a loan is obviously wrong. However, that abstract claim simply has no relevance to the morality of income-based repayment plans. The Master Promissory Note (http://www.direct.ed.gov/pubs/dlmpn.pdf) ("Note") for most federal student loans explicitly says that a borrower has the option to repay under either the standard repayment plan or a variety of alternative plans including the "Pay As You Earn Plan". Note *7-8. The lender also reserves the right to offer any other payment plan at its discretion, such as plans that did not yet exist when the Note was signed. Note *2 ("ED will provide you with a choice of repayment plans."). Although we do not know what precise version of the Note was signed by the original poster or by user "ReadySetMillionaire", I think we can safely assume that past versions of the Note contained similar language.

In other words -- as ReadySetMillionaire has already claimed -- taking out a federal loan under the Note with the intent of paying it back under an alternative payment plan is not fraud because (among other reasons) it is expressly permitted by the Note.

This forum has seen its fair share of people imposing bizarre moral requirements on top of legislative programs (http://forum.mrmoneymustache.com/welcome-to-the-forum/am-i-crazy-not-to-work-8-more-hours-a-week-for-health-insurance/msg892303/#msg892303), but asking somebody to gratuitously pay more than is owed under a promissory note is a new level of absurdity. This is literally akin to demanding that bond issuers make larger interest payments to you because of inflation (http://forum.mrmoneymustache.com/welcome-to-the-forum/a-common-error-when-calculating-your-target-amount/msg884695/#msg884695). Do you believe that it is unethical for a corporation to pay 2% on a 2% bond, rather than voluntarily increasing the interest payments each year? If you loan your friend $100 at an agreed rate of 0% interest, do you believe it it unethical for them to pay you back with anything less than 3% interest?

The terms of the Note (and applicable law) govern whether somebody is in default of the Note. Your idiosyncratic views of personal morality are irrelevant and wrong.

As for mortgage lending, the lender is presumably free to ask about the balance of the person's outstanding liabilities and to take that information into account in the decision of whether to extend credit. A lender is not restricted to the four corners of a person's credit report, but can (and does) ask whatever it wants, subject only to applicable anti-discrimination laws and other legal requirements. If a lender fails to ask for relevant information and makes a bad result as a result, that is entirely the lender's fault. There is no obligation to give your entire life history to a mortgage lender. Generally speaking, you are required only to truthfully provide the information that they actually ask for.

I conclude that there are no moral issues implicated by this thread. Whether the original poster should or could purchase a house is a separate question.

In closing, I note that many respected long-time members of this website frequently and openly confess to engaging in literal fraud (http://forum.mrmoneymustache.com/ask-a-mustachian/tiffany-bracelets-and-dom-perignon-how-to-sell-this-shit/msg895792/#msg895792) and do not receive the kind of vitriol that people typically post in threads about benefit programs; if anything, such confessed fraudsters receive adulation and praise. Why is it that forum members here approve of tax fraud, but have a problem with honest taxpayers complying with all the terms of their obligations?

Simply using the program is not wrong. Intentionally signing up for debt that you have no intention of paying back is wrong. Figuring out a way to shelter all of your income then retire and keep your income non existent just so you dont have to pay back a loan that lieterally gave you the education to make the money to retire early is also morally wrong. You accepted the liability, plain and simple. If you go to school and know that your loan will be $400,000 for you to attend that school and you have no intention of paying that amount back, that is stealing.

[/quote]
 This forum has seen its fair share of people imposing bizarre moral requirements on top of legislative programs, but asking somebody to gratuitously pay more than is owed under a promissory note is a new level of absurdity. This is literally akin to demanding that bond issuers make larger interest payments to you because of inflation. Do you believe that it is unethical for a corporation to pay 2% on a 2% bond, rather than voluntarily increasing the interest payments each year? If you loan your friend $100 at an agreed rate of 0% interest, do you believe it it unethical for them to pay you back with anything less than 3% interest?
[/quote]

This is the most backwards thing I have ever read. Your analogy is completely wrong, its laughable. The correct interpretation of this analogy would be, that you are a corporate bond issuer, you are paying the 2% like you should, but when the maturity date come, you never give the investor back their principle, you just say, "sorry I stole your money, but there is a provision that certain companies can keep investors money if we shelter our profits to make it look like we dont make as much as we really do," but its ok, "we have to realize your principle payment as income and pay tax on it, and its part of the bond contract and its legal so its morally ok."



Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 13, 2017, 02:23:39 PM
This is the most backwards thing I have ever read. Your analogy is completely wrong, its laughable. The correct interpretation of this analogy would be, that you are a corporate bond issuer, you are paying the 2% like you should, but when the maturity date come, you never give the investor back their principle, you just say, "sorry I stole your money, but there is a provision that certain companies can keep investors money if we shelter our profits to make it look like we dont make as much as we really do," but its ok, "we have to realize your principle payment as income and pay tax on it, and its part of the bond contract and its legal so its morally ok."

Funny that you respond this way, considering you responded to this exact post from Cathy as follows in the same previous thread:

Cathy, always coming through with the knowledge.

I will say this, just because you can legally do something, does not mean that is it free from immorality. The debate that rages all the time is how immoral the banks and lenders were when they would talk people into signing up for mortgages in the 2005-2007 where they had to show no proof of income. Presumably locking people into a loan that they were not sure they could pay, but it didn't matter because the mortgage lenders were going to bundle up the loans and sell them anyways.

So if we admit that those mortgage lenders that told people they should get a loan even though they couldn't afford it in reality and shouldn't, were immoral or unethical. Then there is no difference in someone on this thread telling another person who is already drowning in student debt to use a government program to make it so they can qualify for a loan to get MORE in debt.

Using the REPAYE or PAYE program itself is a great idea if it makes sense financially for you. It in and of itself is not immoral. But the person telling you to manipulate your finances to make you look better on paper than you really are to get you in a worse position financially is being immoral. There is no argument around that.

Spare me the outrage.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 13, 2017, 02:48:02 PM
This is the most backwards thing I have ever read. Your analogy is completely wrong, its laughable. The correct interpretation of this analogy would be, that you are a corporate bond issuer, you are paying the 2% like you should, but when the maturity date come, you never give the investor back their principle, you just say, "sorry I stole your money, but there is a provision that certain companies can keep investors money if we shelter our profits to make it look like we dont make as much as we really do," but its ok, "we have to realize your principle payment as income and pay tax on it, and its part of the bond contract and its legal so its morally ok."

Funny that you respond this way, considering you responded to this exact post from Cathy as follows in the same previous thread:

Cathy, always coming through with the knowledge.

I will say this, just because you can legally do something, does not mean that is it free from immorality. The debate that rages all the time is how immoral the banks and lenders were when they would talk people into signing up for mortgages in the 2005-2007 where they had to show no proof of income. Presumably locking people into a loan that they were not sure they could pay, but it didn't matter because the mortgage lenders were going to bundle up the loans and sell them anyways.

So if we admit that those mortgage lenders that told people they should get a loan even though they couldn't afford it in reality and shouldn't, were immoral or unethical. Then there is no difference in someone on this thread telling another person who is already drowning in student debt to use a government program to make it so they can qualify for a loan to get MORE in debt.

Using the REPAYE or PAYE program itself is a great idea if it makes sense financially for you. It in and of itself is not immoral. But the person telling you to manipulate your finances to make you look better on paper than you really are to get you in a worse position financially is being immoral. There is no argument around that.

Spare me the outrage.

I still feel the exact same way. I have not changed my opinion, I read my previous response before I posted here.

REPAYE is great if you need it...just like I said. I am not against people taking assistance when in need. Im against people willingly sign up for a liability they have no intention of paying. It is wrong. If you feel morally justified because your dad payed less than you for college blah blah blah, so that means that you shouldn't have to pay the amount you signed up for, then just admit that. But just so you know, it is not ethically right. It's just you whining.

Ethics is a funny thing, but there is always a way to determine if something is ethical (which I learned in my ethics class in college. I had to take out a loan for, but chose to pay it back in full). The test is if what you did was posted on the front page news, would you be embarassed. Here's the headline,
"Readysetmillionaire acquired substancial student loan debt to get degree to earn high salary, now comfortably retired a millionaire, he is letting the taxpayers pay off his loan, because he can."

I wouldn't be able to look my neighbor in the face if that came out, so if you can, like I said before, congrats you are an immoral person.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 13, 2017, 03:12:01 PM
I still feel the exact same way. I have not changed my opinion, I read my previous response before I posted here.

REPAYE is great if you need it...just like I said. I am not against people taking assistance when in need. Im against people willingly sign up for a liability they have no intention of paying. It is wrong. If you feel morally justified because your dad payed less than you for college blah blah blah, so that means that you shouldn't have to pay the amount you signed up for, then just admit that. But just so you know, it is not ethically right. It's just you whining.

Ethics is a funny thing, but there is always a way to determine if something is ethical (which I learned in my ethics class in college. I had to take out a loan for, but chose to pay it back in full). The test is if what you did was posted on the front page news, would you be embarassed. Here's the headline,
"Readysetmillionaire acquired substancial student loan debt to get degree to earn high salary, now comfortably retired a millionaire, he is letting the taxpayers pay off his loan, because he can."

I wouldn't be able to look my neighbor in the face if that came out, so if you can, like I said before, congrats you are an immoral person.

Again, your assumption that taxpayers will pay off my loan demonstrates a fundamental misunderstanding about how this entire thing works. Utilizing REPAYE--even stretched to its absolute limit--is simply a delay strategy. I will demonstrate the math in my own case to show you.

My loan when I graduated was approximately $147,000.  If I paid this off via the traditional ten year route, it would cost approximately $201,000.  This would require payments of approximately $1,672 per month for ten years.

FYI, I make $47,500 per year as an attorney--not sure if you think I'm making bogo bucks, but I'm not. So this monthly payment would represent 42% of my pre-tax income, or 59.9% of my after-tax income if I contributed $0 to my 401k and HSA.

Such a scenario is obviously not ideal for me, and it would seem to me that REPAYE was made for people exactly like me. 

REPAYE is hard to estimate because it's based on income, so it's hard to predict; nevertheless, my educated guess shows  that my 25 year payments will average to be about $500/month over the course of 25 years (even after FIRE, we intend to do some work, and thus will have some payment then). 

This means that I will pay approximately $150,000 in payments. I then estimate that approximately $150,000 of loans will be "forgiven" because the principal would not have moved much; however, I will then have to pay income tax on this "forgiven" amount.  This income tax would be approximately $50,000, putting me at $200,000 of payments.

Thus, I would pay $201k over ten years.  If I use REPAYE then I pay $200k over 25 years.

While these are approximately the same amount of money, a valid argument exists that the longer loan term is worth less because of time value of money. I would counter with two points.  First, we are talking about 15 years, and TVM does not change *that* much over this period of time.

Second, and considerably more importantly, being able to utilize REPAYE allows me to allocate assets elsewhere. I am invested in companies; I have purchased a house; I have hired a local contractor to do a few (minor) renovations); I am helping my fiance pay off a car loan; I bought an engagement ring at a locally owned jeweler; I've traveled some this past year (using mostly credit card points); I am saving up assets in an HSA so I don't become a burden on my family or society should I become sick; I am saving for retirement so I am self-sufficient when I am of traditional retirement age; I could go on.

The federal government has presumably weighed the TVM argument against my ability to allocate resources elsewhere, and decided that allowing recent student loan borrowers to allocate money elsewhere is the better alternative for society, the economy, and the government. To the last group--think about it--would the federal government ever create a formula where they would get less than what they think they are owed?

Bottom line: if you think this delayed form of payment makes me immoral, that's fine, but I just don't get it.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 13, 2017, 03:32:03 PM
I think that the "intentionally going into debt/not repaying" comments might be directed at me, since in my OP I note that DW and I are anticipating possibly taking out additional student loans for her to finish her grad school, and in the same post contemplate using the IBR/REPAYE program, which could result in some portion of those loans being forgiven. (Although the people who understand how REPAYE actually works will note that I will likely end up paying the entire amount one way or the other, as RSM showed in their example above.)

I think that people in this thread are conflating my OP with me saying "hey, I have a bunch of debt and I am planning to rack up a bunch more debt, check out how I'm going to get out of paying it."

While this is NOT an accurate representation of what I was saying, I understand how people would get upset if they think I'm trying to "get one over" on the taxpayer (and anyone who has had money withheld from a paycheck easily assumes the role of taxpayer in these types of discussions, regardless of whether they actually end up paying and federal income tax).

So it goes that, by that logic, I must be stealing from them personally - hence the strong negative reaction.

I think that the misinterpretation of my OP combined with the fact that I'm a lawyer, makes it easy for people to assume I'm trying to lie-cheat-and-steal my way to FIRE. This is really not the case.

When I made my OP, I was just feeling discouraged by my student loan situation and figured "heck, I might be in REPAYE for 25 years and if that ends up being the case, how should I be tracking my net worth? I know, I'll ask the mustashians."

Edit: typo
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: BTH7117 on January 13, 2017, 05:21:24 PM
OP - You're taking advantage of a government program specifically designed for your situation.  That strikes me inherently more reasonable than taking advantage of backdoor Roth IRAs, but I think it's a mistake to assign morality to government fiscal policies.  Amazing how this otherwise rational board loses its collective mind over back-end government subsidies vs front-end.

The government decided something had to be done about higher education affordability.  Instead of spending money on the front-end to make it more affordable, they decided to kick the can down the road (http://www.washingtonpost.com/wp-dyn/content/article/2007/09/27/AR2007092700958.html) and forgive student loan debt after a substantial period of repayment.  Not the strategy I would have went with, but I am not the king of America.  The government could have capped the amount of debt eligible for forgiveness, limited it to certain low-paying professions, limited it to in-need-of professions (STEM) or created an income limit.  The government chose to do none of these things.

To those on this board who want to endlessly litigate this program: may I suggest not taking out your frustration on random internet persons, but rather contact your representative (http://www.house.gov/representatives/find)?  Perhaps that will make these threads less tedious and still give many a chance to vent their white-hot rage over this program?

(Disclosure - I am 7 years into a 10 year Public Service Loan Forgiveness period).
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 13, 2017, 07:31:26 PM
I still feel the exact same way. I have not changed my opinion, I read my previous response before I posted here.

REPAYE is great if you need it...just like I said. I am not against people taking assistance when in need. Im against people willingly sign up for a liability they have no intention of paying. It is wrong. If you feel morally justified because your dad payed less than you for college blah blah blah, so that means that you shouldn't have to pay the amount you signed up for, then just admit that. But just so you know, it is not ethically right. It's just you whining.

Ethics is a funny thing, but there is always a way to determine if something is ethical (which I learned in my ethics class in college. I had to take out a loan for, but chose to pay it back in full). The test is if what you did was posted on the front page news, would you be embarassed. Here's the headline,
"Readysetmillionaire acquired substancial student loan debt to get degree to earn high salary, now comfortably retired a millionaire, he is letting the taxpayers pay off his loan, because he can."

I wouldn't be able to look my neighbor in the face if that came out, so if you can, like I said before, congrats you are an immoral person.

Again, your assumption that taxpayers will pay off my loan demonstrates a fundamental misunderstanding about how this entire thing works. Utilizing REPAYE--even stretched to its absolute limit--is simply a delay strategy. I will demonstrate the math in my own case to show you.

My loan when I graduated was approximately $147,000.  If I paid this off via the traditional ten year route, it would cost approximately $201,000.  This would require payments of approximately $1,672 per month for ten years.

FYI, I make $47,500 per year as an attorney--not sure if you think I'm making bogo bucks, but I'm not. So this monthly payment would represent 42% of my pre-tax income, or 59.9% of my after-tax income if I contributed $0 to my 401k and HSA.

Such a scenario is obviously not ideal for me, and it would seem to me that REPAYE was made for people exactly like me. 

REPAYE is hard to estimate because it's based on income, so it's hard to predict; nevertheless, my educated guess shows  that my 25 year payments will average to be about $500/month over the course of 25 years (even after FIRE, we intend to do some work, and thus will have some payment then). 

This means that I will pay approximately $150,000 in payments. I then estimate that approximately $150,000 of loans will be "forgiven" because the principal would not have moved much; however, I will then have to pay income tax on this "forgiven" amount.  This income tax would be approximately $50,000, putting me at $200,000 of payments.

Thus, I would pay $201k over ten years.  If I use REPAYE then I pay $200k over 25 years.

While these are approximately the same amount of money, a valid argument exists that the longer loan term is worth less because of time value of money. I would counter with two points.  First, we are talking about 15 years, and TVM does not change *that* much over this period of time.

Second, and considerably more importantly, being able to utilize REPAYE allows me to allocate assets elsewhere. I am invested in companies; I have purchased a house; I have hired a local contractor to do a few (minor) renovations); I am helping my fiance pay off a car loan; I bought an engagement ring at a locally owned jeweler; I've traveled some this past year (using mostly credit card points); I am saving up assets in an HSA so I don't become a burden on my family or society should I become sick; I am saving for retirement so I am self-sufficient when I am of traditional retirement age; I could go on.

The federal government has presumably weighed the TVM argument against my ability to allocate resources elsewhere, and decided that allowing recent student loan borrowers to allocate money elsewhere is the better alternative for society, the economy, and the government. To the last group--think about it--would the federal government ever create a formula where they would get less than what they think they are owed?

Bottom line: if you think this delayed form of payment makes me immoral, that's fine, but I just don't get it.

I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 13, 2017, 08:25:31 PM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Didn't recognize your username so I decided to take a look at your post history real quick and, drumroll, your very first post...

Our accountant told us to rent our home office to our S-Corp instead of depreciating or anything else.  We've done it for years.  It is one way to move S-Corp cash to you without paying SSN and Medicare on the proceeds too.  Of course you personally have to take the rent as rent on your personal tax returns.

Ah, of course it's perfectly okay for you to optimize the tax code and pay as little to the government as possible when it benefits you.

You can't make this stuff up you guys.



Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: SimpleCycle on January 13, 2017, 08:28:16 PM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Federal loan amounts are limited to the cost of attendance, which is based on tuition + reasonable living expenses.  At my grad institution, that was $850/month for room and board, so hardly living large in a place where rent for a two bedroom with a roommate was $500-$600.  Sure, I could have borrowed $1-$2k more a year than my actual expenses, but that's it.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Lski'stash on January 13, 2017, 08:37:23 PM
I skipped to the end after i read ths, so someone might have already posted something similar to mine. I am on the PSLF right now for my federal student loans (teacher) with about six years worth of payments left. I literally pay so little on them ($168 a month), that the balance keeps going up.

To keep it simple, I calculate my husband's and my net worth with AND without the fed loans. It doesn't really factor into FI calculations, as long as I don't get screwed over with the risky strategy. See my blog for examples of how I keep track of it.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 14, 2017, 02:01:08 AM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Didn't recognize your username so I decided to take a look at your post history real quick and, drumroll, your very first post...

Our accountant told us to rent our home office to our S-Corp instead of depreciating or anything else.  We've done it for years.  It is one way to move S-Corp cash to you without paying SSN and Medicare on the proceeds too.  Of course you personally have to take the rent as rent on your personal tax returns.

Ah, of course it's perfectly okay for you to optimize the tax code and pay as little to the government as possible when it benefits you.

You can't make this stuff up you guys.


Also a proponent of the ACA.

Also didn't realize it was in the loan documents. Still stand by the fact it shouldn't exist IMO.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: larmando on January 14, 2017, 02:46:16 AM
Also a proponent of the ACA.

Also didn't realize it was in the loan documents. Still stand by the fact it shouldn't exist IMO.
It's fair to think it shouldn't exist, and to vote accordingly, but you can't call *immoral* the people who knowing it exists chose to use it, taking a risk. It's not any different than exploiting any other tax break, or loophole, or advantage you may have. And we all have different ones.

For example Americans can defer lots of taxes on many investment plans (at the expense of the national debt and other taxpayers), and in other countries we can't defer any, and only have the choice of taxable investments and bad super-expensive options that don't make that much sense.

On the other hand many Europeans have to pay very-little-to-nothing to get any amount of education, and then they can just switch country to get a better paying job, and not pay even income tax in the country that effectively financed their education (although there was no loan involved).

Corporations and very wealthy individuals get untold advantages out of trusts, offshore investments, and other schemes.

Children of wealthy families never need to work a day and are already rich due to the birth lottery and very low taxes on non-earned income passed from generation to generation.

We should vote with our morality in mind but can't waste our lives being jealous of the benefits that other people might have gotten or calling them immoral for them.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: larmando on January 14, 2017, 02:54:57 AM
Simply using the program is not wrong. Intentionally signing up for debt that you have no intention of paying back is wrong. Figuring out a way to shelter all of your income then retire and keep your income non existent just so you dont have to pay back a loan that lieterally gave you the education to make the money to retire early is also morally wrong. You accepted the liability, plain and simple. If you go to school and know that your loan will be $400,000 for you to attend that school and you have no intention of paying that amount back, that is stealing.

Well, if by law and the terms of the note you don't *have* to repay it under all circumstances, maybe it's not *debt*, but just a value of the cost of your education, that you partially or totally get to repay according to the current and future laws. Perhaps its nominal interest rate and real interest rate differ (if at the end you paid more than what you nominally borrowed you still paid with a non-zero interest rate: and remember, some countries can currently borrow below-0). It's just a financial product that is misleadingly called a "loan" but works differently. For example it doesn't incur in interest until you graduate I recall, which is already strange for a proper TMV-based loan.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 14, 2017, 04:45:34 AM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Didn't recognize your username so I decided to take a look at your post history real quick and, drumroll, your very first post...

Our accountant told us to rent our home office to our S-Corp instead of depreciating or anything else.  We've done it for years.  It is one way to move S-Corp cash to you without paying SSN and Medicare on the proceeds too.  Of course you personally have to take the rent as rent on your personal tax returns.

Ah, of course it's perfectly okay for you to optimize the tax code and pay as little to the government as possible when it benefits you.

You can't make this stuff up you guys.

Yes  - optimizing the tax code by paying personal income tax on rent paid to me by my business for my home office that is only used for business instead of taking a massive depreciation?  I'm not sure what you are getting at.   Depreciating the home office would have netted a huge tax advantage each year.  Renting the office causes us to PAY PERSONAL INCOME TAX ON THAT RENT. IN OTHER WORDS - WE DON'T USE THE TAX AVOIDANCE METHOD (DEPRECIATION) OF ACCOUNTING FOR OUR HOME OFFICE.

YOU CAN'T MAKE THIS UP FOLKS! WE, THE TAX PAYERS, ARE PAYING FOR  READYSETMILLIONAIRE'S EDUCATION THAT RESULTED IN A COMPLETE LACK OF READING COMPREHENSION.

And I don't use ACA - yet.  I, however, would like to be able to buy a very high deductible policy in my future.  I've said this multiple times.  I simply want access that I will pay for. I don't qualify for subsidies and never will.  I am, however, a person that is paying the tax to subsidize others on multiple fronts - and yes - I support that and my taxes paying for health insurance because I am human and think our rich country ought to provide better health care for its population.

Unlike health care options, this country provides all kinds of inexpensive options for higher education.  Most high schools offer AP courses.  Both of our kids started college with  60 hours of AP courses.  Most community colleges offer high school/college combined classes for free - so some state required courses can be knocked out in high school qualifying for graduation from high school and college. Our kids did this for a few courses  Community colleges can account for half of one's education at a very reasonable cost that a student can pay while working part time through school.  Our kids could not do this as they already had 2 years worth of credit when they started college.  And most state schools are reasonably priced. I have an issue with paying my tax dollars for people who choose to go to school where they cannot afford to go and expect the rest of us to pay for it.

I went to law school (merit based scholarship that I tried to turn down since I did not need it and cash out of pocket - BTW) not long ago and saw first hand this abuse of federal loans for school. If loans were limited to in-state tuition, books, and some minimal living expenses beyond that - then I would support the types of loan avoidance discussed here.  That is not how they are used.  They are used to have a cadillac experience. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 14, 2017, 05:15:52 AM
And - while I'm on this rant - another one of my pet peeves is this - and it could be true about other graduate professions.  Before going to graduate school the first time for an MS in engineering - I sat down and figured out a cost benefit analysis and determined how long I had to work as an engineer to make the MS pay off.  It was worth it with a that long term goal.

I did the same thing about law school. Only law school is different.  Big, national law firms now hire new lawyers at $180K per year.  Sounds enticing, doesn't it?  Well - you have to come from one of the top law schools and from the top 10% of your class to get one of those jobs - like I did.  And you have to interview well and play well with others.  If you don't go to a top 15 or 20 law school - your chances of grabbing this brass ring are infinitesimal.  And if you don't YOU AREN'T LIKELY TO MAKE MORE THAN YOU COULD HAVE BEFORE YOU WENT TO LAW SCHOOL. So in doing my cost benefit analysis - I determined I had to graduate in the top 10% of my top 15 law school in order for going to mean that I netted more than I could as a very experienced engineer.  With that in mind - I gave myself the first year of law school to prove I could do it - and the first year is really the only one that matters.  But if after the first year I had not achieved that goal - I had to cut bait and run since I was never going to earn more as a lawyer than an engineer if I did not make the top 10%.  Now that is not to say that there are some cases where those from lesser schools get hired at big law firms - of course there are - because of many different reasons - but the chances are very small indeed.  Yet my law school class was full of hopeful people going for the brass ring. Honestly - I don't think my federal tax dollars should pay for that.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 14, 2017, 05:35:55 AM
Just so I understand  your views

1. The govt shouldn't subsidize education BC you don't/didn't  need it
2. The govt should provide tax breaks to wealthy scorp owners because you use it
3. The ACA needs to offer coverage for all with pre existing conditions but high deductible plans BC you have a pre existing condition and the money to afford high deductible so you'll use it.

As long as you aren't hiding behind the fact that your views are for the good of all society and are swayed to your benefit. As I'll readily admit most of my views are then I think we're on the same page.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 14, 2017, 05:45:55 AM
Just so I understand  your views

1. The govt shouldn't subsidize education BC you don't/didn't  need it
2. The govt should provide tax breaks to wealthy scorp owners because you use it
3. The ACA needs to offer coverage for all with pre existing conditions but high deductible plans BC you have a pre existing condition and the money to afford high deductible so you'll use it.

As long as you aren't hiding behind the fact that your views are for the good of all society and are swayed to your benefit. As I'll readily admit most of my views are then I think we're on the same page.

I guess you did not read what a I wrote.  The government is not providing me a tax break as a wealthy S corporation owner - I specifically said that we are not taking the tax break.  Using depreciation allows you to avoid taxes on real income - when we pay rent from the business (legitimately so that the business has a place to operate) and then we PAY income tax on the rent the business pays to us.  What about that is not clear to YOU?  Don't twist my words. 

So, again - AND PLEASE DON'T PUT WORDS IN MY MOUTH EVERY AGAIN THAT ARE NOT MY OWN:

1.)NOBODY NEEDS AN EDUCATION SUBSIDY BECAUSE THERE ARE VERY CHEAP OPTIONS FOR EVERYONE TO GET A COLLEGE EDUCATION. SINCE THERE IS - I SEE NO REASON FOR FURTHER SUBSIDY SINCE MOST OF THESE ARE ALREADY HEAVILY SUBSIDIZED.

2.)SEE ABOVE - WE DID NOT TAKE THE TAX ADVANTAGED OPTION FOR OUR S CORPORATION.

3.)I THINK EVERYBODY WHO CAN AFFORD IT SHOULD PAY FOR DAY TO DAY MEDICAL TREATMENTS FOR THEMSELVES BUT ALSO PAY FOR INSURANCE FOR A CATASTROPHE.  HOWEVER - THERE ARE SOME UNFORTUNATE PEOPLE THAT DESERVE MY COMPASSION AND SHOULD GET THEIR BASIC HEALTH CARE MET REGARDLESS OF INCOME IN THIS VERY AFFLUENT COUNTRY WHERE THERE ARE SO FEW LOW COST OPTIONS.  WE ARE ALL BETTER OFF IF PEOPLE GET BASIC MEDICAL CARE IN THE LONG RUN. I HAD OPERABLE AND CURABLE CANCER AND AM NOW LABELED TO HAVE A PREEXISTING CONDITION.  I CAN BUY MY OWN HEALTHCARE AND OUR FALL BACK IS TO HAVE A HUGE LIFE INSURANCE POLICY ON ME SO THAT MY HUSBAND CAN STILL HAVE A NICE LIFE SHOULD MY MEDICAL CARE BANKRUPT US OTHERWISE. AND WE HAVE A QUITE EXTENSIVE LONG TERM CARE POLICY FOR THAT EVENT. WE ARE LUCKY.  MOST PEOPLE ARE NOT.  THEY AND WE DESERVE OPTIONS.

AND - NO - I'LL NEVER BE ON THE SAME PAGE AS YOU.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 14, 2017, 05:50:15 AM
OK so you're using none of the tax advantages provided by an scorp vs a typical LLC. Question I have is then why be an s Corp.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 14, 2017, 05:53:57 AM
OK so you're using none of the tax advantages provided by an scorp vs a typical LLC. Question I have is then why be an s Corp.

For a very simple legal reason.  When you operate a business as yourself you cannot get business liability insurance and if anything happens you can be sued in your personal capacity.  Operating as an S Corp is the simplest way to establish a corporation to do business whereby the corporation is solely responsible - in most cases - for the business liability. And the corporation can get business liability insurance - which is REQUIRED when you want to do business with most large companies. 

The S Corp doesn't shield you from taxes - they just flow to you personally.  But it is a simple solution to getting the liability insurance necessary to do business at large companies that the large companies require for our line of work.  It is so simple that I established it myself before I was a lawyer.  Anyone can do it.  Other forms of corporation are much harder and the taxes are more complicated.

Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: iris lily on January 14, 2017, 07:42:31 AM
I think that the "intentionally going into debt/not repaying" comments might be directed at me, since in my OP I note that DW and I are anticipating possibly taking out additional student loans for her to finish her grad school, and in the same post contemplate using the IBR/REPAYE program, which could result in some portion of those loans being forgiven. (Although the people who understand how REPAYE actually works will note that I will likely end up paying the entire amount one way or the other, as RSM showed in their example above.)

I think that people in this thread are conflating my OP with me saying "hey, I have a bunch of debt and I am planning to rack up a bunch more debt, check out how I'm going to get out of paying it."

While this is NOT an accurate representation of what I was saying, I understand how people would get upset if they think I'm trying to "get one over" on the taxpayer (and anyone who has had money withheld from a paycheck easily assumes the role of taxpayer in these types of discussions, regardless of whether they actually end up paying and federal income tax).

So it goes that, by that logic, I must be stealing from them personally - hence the strong negative reaction.

I think that the misinterpretation of my OP combined with the fact that I'm a lawyer, makes it easy for people to assume I'm trying to lie-cheat-and-steal my way to FIRE. This is really not the case.

When I made my OP, I was just feeling discouraged by my student loan situation and figured "heck, I might be in REPAYE for 25 years and if that ends up being the case, how should I be tracking my net worth? I know, I'll ask the mustashians."

Edit: typo

Ok, I apologize for the low blow shyster lawyer comment.

Now, let's be real. In the real world of student loans,  debt is liability. Simple truth.

Risk for the (?$400,000?) debt you are taking on is monumental. Your debt is risky, simple truth. Forget about the morality of it.

I am surprised you cant see these simple truths. Oh and here is another canard I'll shoot at: education debt is not "good" debt. There is no "good" debt. Interest is The Enemy. Do not  feed The
Enemy.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 14, 2017, 07:57:08 AM
DD: You yourself just pointed out the big thing with law school: you have to go to the best school possible to try and land one of the few great jobs.

I took AP classes and went to Ohio State for undergrad. I graduated undergrad in four years with something like $30k in debt, which wasn't bad considering tuition over four years was $44k and I had to pay all of my cost of living.

Law school is what killed me. I could have gone to a lower ranked school but I knew that would limit my career options (as you pointed out). So I chose to go to Ohio State because they have a tremendous track record in job placement in Cleveland, Columbus, and Cincy. Tuition was $29k/year there.  And that's where my debt exploded.

I worked as a clerk second semester of 1L and as an SA 2L summer. I made decent money but not enough to really keep my loans under wraps. This was especially true since loans accrue interest through school and capitalize six months after you graduate.

My SA fell through and I was scrambling for a job and ended up where I am making $50k. I had not even heard of REPAYE or PAYE when I went to law school--I only became aware of these programs after I had graduated and was in a huge bind.

As a fellow lawyer, you more than anyone should know the pressures of needing to go to a good school. I understand you were at a different stage of your life, but I wasn't. I was 22 and had to decide "Work, save up for five years and then go, or take the risk." I took the risk. Here I am. And now I'm paying back the loans the most optimal way I can.

I'll also point out that my OSU gamble may have paid off--I am beginning the interview process at a huge firm in Pittsburgh. If this comes through, then REPAYE would have acted as a tremendous hedge (I.e, it allowed me to save and keep payments low, but once income increases drastically, I can pay them off easy).
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 15, 2017, 04:54:45 PM
You knew before you went to law school that if you did not get a really high paying job you would be in a bind if you borrowed all of that money.  But you borrowed it anyway - betting against the odds.  And now I am paying for your bet and losing.  And MAYBE you'll still be able to grab the golden ring - MAYBE.  If you don't - I'm still paying for it.  I don't agree that I should have to be on the hook for your gamble.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: WyomingGuy on January 15, 2017, 07:02:09 PM
You knew before you went to law school that if you did not get a really high paying job you would be in a bind if you borrowed all of that money.  But you borrowed it anyway - betting against the odds.  And now I am paying for your bet and losing.  And MAYBE you'll still be able to grab the golden ring - MAYBE.  If you don't - I'm still paying for it.  I don't agree that I should have to be on the hook for your gamble.

Seconded.

And as to ReadySetMillionare's statement that "my SA 'fell through'", I'm a lawyer, too, or was in my distant pass. Did the Big Law thing. The English translation of RSM's statement is that "I didn't get the SA." You gambled and lost. And now you are asking the rest of us to pay for it.

Pittsburgh is a tiny legal market, fyi. Pittsburgh isn't Big Law.

I'd like to be a high-paid astronomer, too. I think I will go back to grad school tomorrow and pursue said degree, perhaps with a minor in cosmology. And if I don't get said job, I will ask Joe Q Public to subsidize my decision.

Man up and take responsibility for your decision(s).
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 15, 2017, 07:32:18 PM
To the above two posters, please see my RELAYE calculations and tell me how, with numbers, you are footing the bill for me, and that REPAYE is not just a delayed form of repayment in accordance with the terms of the loan where the government makes up almost all of its loan balance back anyway.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: bugbaby on January 15, 2017, 08:10:26 PM
I don't get it, why are folks so bitter about the hardworking honest OP using the legal IBR way to pay his student loans?

 How about Buffet and Trump availing themselves of all available tax loopholes to pay as little as possible? How about the banks that borrow at 0% to lend to students at 7.9% and still received a $1 trillion bailout???

PS- I paid off my $260k student loan in 5 years by sheer brutal badassity...  but I'd be thrilled if every existing student loan was wiped out today and new rules set up to protect against the profiteering going on between greedy colleges and greedy banks.


Sent from my Nexus 5 using Tapatalk

Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Psychstache on January 15, 2017, 08:13:00 PM
OP, of your wife wants to be a school psychologist, why is she looking at PHD programs? Virtually every LSSP (licensed specialist in school psychology) I know (which is a lot since I am one too) has 'just' a masters, which is cheaper and quicker to get and there is no difference in pay. The only LPs I know working in schools are running the school psychologist departments, but all of them started workers in the field and got their PhD afterward. I've also seen many departments run by people without PhDs, but usually only smaller districts.

TL;DR: I'd your wife wants to be a school psychologist, a PhD program might be a waste of time.

Sent from my SM-G930V using Tapatalk

Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: LeRainDrop on January 16, 2017, 11:43:00 AM
The debt will be forgiven if you stick to your plan.

Right -- the debt will be forgiven ONLY IF you stick to your plan and satisfy every single condition of the IBR program.  This means that until you pay your very last required payment, you still own the whole liability.  Who knows yet if your life will go according to the current plan, or if unexpected things will come up that force you to change your plan?  Don't count your chickens before they hatch.  This debt is legitimately part of your net worth.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: FIer_Fox on January 16, 2017, 03:59:26 PM
OP, of your wife wants to be a school psychologist, why is she looking at PHD programs? Virtually every LSSP (licensed specialist in school psychology) I know (which is a lot since I am one too) has 'just' a masters, which is cheaper and quicker to get and there is no difference in pay. The only LPs I know working in schools are running the school psychologist departments, but all of them started workers in the field and got their PhD afterward. I've also seen many departments run by people without PhDs, but usually only smaller districts.

TL;DR: I'd your wife wants to be a school psychologist, a PhD program might be a waste of time.

Sent from my SM-G930V using Tapatalk

Psychstache, you are right on this one. I have had that same conversation with DW a few times, and frankly the PhD vs Masters decision had been tough. Some of reasons for pursuing the PhD are (potential) higher pay, genuine and deep interest in the subject matter, the perceived competitiveness the districts in our local area.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 07:54:23 AM
I still feel the exact same way. I have not changed my opinion, I read my previous response before I posted here.

REPAYE is great if you need it...just like I said. I am not against people taking assistance when in need. Im against people willingly sign up for a liability they have no intention of paying. It is wrong. If you feel morally justified because your dad payed less than you for college blah blah blah, so that means that you shouldn't have to pay the amount you signed up for, then just admit that. But just so you know, it is not ethically right. It's just you whining.

Ethics is a funny thing, but there is always a way to determine if something is ethical (which I learned in my ethics class in college. I had to take out a loan for, but chose to pay it back in full). The test is if what you did was posted on the front page news, would you be embarassed. Here's the headline,
"Readysetmillionaire acquired substancial student loan debt to get degree to earn high salary, now comfortably retired a millionaire, he is letting the taxpayers pay off his loan, because he can."

I wouldn't be able to look my neighbor in the face if that came out, so if you can, like I said before, congrats you are an immoral person.

Again, your assumption that taxpayers will pay off my loan demonstrates a fundamental misunderstanding about how this entire thing works. Utilizing REPAYE--even stretched to its absolute limit--is simply a delay strategy. I will demonstrate the math in my own case to show you.

My loan when I graduated was approximately $147,000.  If I paid this off via the traditional ten year route, it would cost approximately $201,000.  This would require payments of approximately $1,672 per month for ten years.

FYI, I make $47,500 per year as an attorney--not sure if you think I'm making bogo bucks, but I'm not. So this monthly payment would represent 42% of my pre-tax income, or 59.9% of my after-tax income if I contributed $0 to my 401k and HSA.

Such a scenario is obviously not ideal for me, and it would seem to me that REPAYE was made for people exactly like me. 

REPAYE is hard to estimate because it's based on income, so it's hard to predict; nevertheless, my educated guess shows  that my 25 year payments will average to be about $500/month over the course of 25 years (even after FIRE, we intend to do some work, and thus will have some payment then). 

This means that I will pay approximately $150,000 in payments. I then estimate that approximately $150,000 of loans will be "forgiven" because the principal would not have moved much; however, I will then have to pay income tax on this "forgiven" amount.  This income tax would be approximately $50,000, putting me at $200,000 of payments.

Thus, I would pay $201k over ten years.  If I use REPAYE then I pay $200k over 25 years.

While these are approximately the same amount of money, a valid argument exists that the longer loan term is worth less because of time value of money. I would counter with two points.  First, we are talking about 15 years, and TVM does not change *that* much over this period of time.

Second, and considerably more importantly, being able to utilize REPAYE allows me to allocate assets elsewhere. I am invested in companies; I have purchased a house; I have hired a local contractor to do a few (minor) renovations); I am helping my fiance pay off a car loan; I bought an engagement ring at a locally owned jeweler; I've traveled some this past year (using mostly credit card points); I am saving up assets in an HSA so I don't become a burden on my family or society should I become sick; I am saving for retirement so I am self-sufficient when I am of traditional retirement age; I could go on.

The federal government has presumably weighed the TVM argument against my ability to allocate resources elsewhere, and decided that allowing recent student loan borrowers to allocate money elsewhere is the better alternative for society, the economy, and the government. To the last group--think about it--would the federal government ever create a formula where they would get less than what they think they are owed?

Bottom line: if you think this delayed form of payment makes me immoral, that's fine, but I just don't get it.

Your situation seems like it is one that represents a fair use of the program. I dont know why, but for some reason you are horribly underpaid. I dont know if this is by choice and I dont know enough about the lawyer profession, except I do taxes for a many lawyers and they are all well into the 6 figures, even the ones in their 20's are making 90-120k starting. So I assumed (should never had done that) that you were making a lot more than you are. I think that if you borrow money, it should be paid back, I literally lived on nothing in a basement for 2 years to pay off my student loans, simply because I felt it was the right thing to do.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 08:03:04 AM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Didn't recognize your username so I decided to take a look at your post history real quick and, drumroll, your very first post...

Our accountant told us to rent our home office to our S-Corp instead of depreciating or anything else.  We've done it for years.  It is one way to move S-Corp cash to you without paying SSN and Medicare on the proceeds too.  Of course you personally have to take the rent as rent on your personal tax returns.

Ah, of course it's perfectly okay for you to optimize the tax code and pay as little to the government as possible when it benefits you.

You can't make this stuff up you guys.

Minimizing federal income tax is your obligation. Dont confuse this with getting out of a loan with a predermined interest rate. What do you expect him to do, not take deductions? Pay more than he is supposed to? You fundamentally dont understand taxes. It is your duty as a taxpayer to pay as little tax as legally possible. Do you go to the auto mechanic and when he tells you its 1,200 to fix your car, you write him a check for $2,000? It is the exact same thing.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 17, 2017, 08:04:32 AM
I still feel the exact same way. I have not changed my opinion, I read my previous response before I posted here.

REPAYE is great if you need it...just like I said. I am not against people taking assistance when in need. Im against people willingly sign up for a liability they have no intention of paying. It is wrong. If you feel morally justified because your dad payed less than you for college blah blah blah, so that means that you shouldn't have to pay the amount you signed up for, then just admit that. But just so you know, it is not ethically right. It's just you whining.

Ethics is a funny thing, but there is always a way to determine if something is ethical (which I learned in my ethics class in college. I had to take out a loan for, but chose to pay it back in full). The test is if what you did was posted on the front page news, would you be embarassed. Here's the headline,
"Readysetmillionaire acquired substancial student loan debt to get degree to earn high salary, now comfortably retired a millionaire, he is letting the taxpayers pay off his loan, because he can."

I wouldn't be able to look my neighbor in the face if that came out, so if you can, like I said before, congrats you are an immoral person.

Again, your assumption that taxpayers will pay off my loan demonstrates a fundamental misunderstanding about how this entire thing works. Utilizing REPAYE--even stretched to its absolute limit--is simply a delay strategy. I will demonstrate the math in my own case to show you.

My loan when I graduated was approximately $147,000.  If I paid this off via the traditional ten year route, it would cost approximately $201,000.  This would require payments of approximately $1,672 per month for ten years.

FYI, I make $47,500 per year as an attorney--not sure if you think I'm making bogo bucks, but I'm not. So this monthly payment would represent 42% of my pre-tax income, or 59.9% of my after-tax income if I contributed $0 to my 401k and HSA.

Such a scenario is obviously not ideal for me, and it would seem to me that REPAYE was made for people exactly like me. 

REPAYE is hard to estimate because it's based on income, so it's hard to predict; nevertheless, my educated guess shows  that my 25 year payments will average to be about $500/month over the course of 25 years (even after FIRE, we intend to do some work, and thus will have some payment then). 

This means that I will pay approximately $150,000 in payments. I then estimate that approximately $150,000 of loans will be "forgiven" because the principal would not have moved much; however, I will then have to pay income tax on this "forgiven" amount.  This income tax would be approximately $50,000, putting me at $200,000 of payments.

Thus, I would pay $201k over ten years.  If I use REPAYE then I pay $200k over 25 years.

While these are approximately the same amount of money, a valid argument exists that the longer loan term is worth less because of time value of money. I would counter with two points.  First, we are talking about 15 years, and TVM does not change *that* much over this period of time.

Second, and considerably more importantly, being able to utilize REPAYE allows me to allocate assets elsewhere. I am invested in companies; I have purchased a house; I have hired a local contractor to do a few (minor) renovations); I am helping my fiance pay off a car loan; I bought an engagement ring at a locally owned jeweler; I've traveled some this past year (using mostly credit card points); I am saving up assets in an HSA so I don't become a burden on my family or society should I become sick; I am saving for retirement so I am self-sufficient when I am of traditional retirement age; I could go on.

The federal government has presumably weighed the TVM argument against my ability to allocate resources elsewhere, and decided that allowing recent student loan borrowers to allocate money elsewhere is the better alternative for society, the economy, and the government. To the last group--think about it--would the federal government ever create a formula where they would get less than what they think they are owed?

Bottom line: if you think this delayed form of payment makes me immoral, that's fine, but I just don't get it.

Your situation seems like it is one that represents a fair use of the program. I dont know why, but for some reason you are horribly underpaid. I dont know if this is by choice and I dont know enough about the lawyer profession, except I do taxes for a many lawyers and they are all well into the 6 figures, even the ones in their 20's are making 90-120k starting. So I assumed (should never had done that) that you were making a lot more than you are. I think that if you borrow money, it should be paid back, I literally lived on nothing in a basement for 2 years to pay off my student loans, simply because I felt it was the right thing to do.

he has a post started up where he now has the option to make 3x that salary.  but is considering not doing it as a lifestyle choice.  This situation just reaks of poor financial planning and considerations in picking your profession and the school and cost to obtain that profession.  as DD pointed out society is footing the bill for the lower 90% of law students who try and fail at the big name big cost universities.  Its a low risk gamble.  and IMO a reason the system should be done away with.  Fact is its part of the contract he signed so you cant fault him for using it. 

Basically the way i see this working is a person decides to chase a brass ring (which no one here focused on FIRE should really do IMO b/c it builds debt and takes a long time to get said ring)
they go to the big school that the big firms recruit in

Finish in the top 10% get into big law yay i can chase the ring and i'll repay my loans my self

Dont finish in the top 10% - dont get into big law - use REPAYE system for society to pay your loans b/c you didnt hack it in law school.

or just run up the debt and never plan to go into big law and expect society to foot your bill with the REPAYE system.

Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 08:12:16 AM
Simply using the program is not wrong. Intentionally signing up for debt that you have no intention of paying back is wrong. Figuring out a way to shelter all of your income then retire and keep your income non existent just so you dont have to pay back a loan that lieterally gave you the education to make the money to retire early is also morally wrong. You accepted the liability, plain and simple. If you go to school and know that your loan will be $400,000 for you to attend that school and you have no intention of paying that amount back, that is stealing.

Well, if by law and the terms of the note you don't *have* to repay it under all circumstances, maybe it's not *debt*, but just a value of the cost of your education, that you partially or totally get to repay according to the current and future laws. Perhaps its nominal interest rate and real interest rate differ (if at the end you paid more than what you nominally borrowed you still paid with a non-zero interest rate: and remember, some countries can currently borrow below-0). It's just a financial product that is misleadingly called a "loan" but works differently. For example it doesn't incur in interest until you graduate I recall, which is already strange for a proper TMV-based loan.

It's a loan. They are student loans. You can put a dress on a pig, its still a pig. The interest is paid by the federal govt while you are attending school, it isnt just non exeistent. Every aspect of the note is the same as every other loan except that if you have low income you can basically pay interest only. Like I said, simply using the program is not wrong, but going into school and racking up "debt" and having no intention to pay it off is wrong, morally. The program is there for those who make a big mistake and don't realize that their $40,000 a year communications degree is a terrible investment. Not for those who plan on retiring early and leaving the burden to the taxpayers still working.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 17, 2017, 08:14:18 AM
Your situation seems like it is one that represents a fair use of the program. I dont know why, but for some reason you are horribly underpaid. I dont know if this is by choice and I dont know enough about the lawyer profession, except I do taxes for a many lawyers and they are all well into the 6 figures, even the ones in their 20's are making 90-120k starting. So I assumed (should never had done that) that you were making a lot more than you are. I think that if you borrow money, it should be paid back, I literally lived on nothing in a basement for 2 years to pay off my student loans, simply because I felt it was the right thing to do.

I'm underpaid largely because I'm in an extremely low COL area. This is certainly not by choice, and I have another thread going right now where I'm discussing jobs that pay significantly more.

I am where I am because things just didn't work out quite right. I did very well 1L year and I had a summer associate position at a 100 lawyer firm during my 2L summer. This is normally where you work after you graduate, and I was lined up to probably make at least $75-80k.  However, one of the managing partners moved to a huge international firm, and the firm ended up not hiring any of the six summer associates that year.

As other lawyers in this thread can testify, when you don't get a permanent offer after having an SA, other employers assume you did something horribly wrong to mess up your offer.  It follows you like a scarlet letter.

I sent hundreds of applications to firms in Ohio, Western PA, and even had a phone interview for a big firm in Chicago that didn't work out. The only thing I had left toward the end of my 3L year was to use my connections back home, which again, is a very low COL area.

So I ended up playing racquetball with my friend, who introduced me to a partner, and the rest is history. I actually worked for $2,000 for three months (total) on an "externship" with this firm before they hired me. It was really my only option.

I'm now looking to apply to big firms in Cleveland and Pittsburgh, which would increase my salary exponentially (3x). I'm see-sawing back and forth on whether I will take those positions, but I am now again leaning more towards taking the opportunity if it comes my way.

Lastly, I don't note any of this to complain. I'm very satisfied with my life--I'm close to family and people I've been friends with since middle school; my employer is generally pretty good; I'm engaged to an awesome fiancee; I live in a great little house.

Just putting all this out there so people know my story, I guess, and how I ended up researching student loan optimization quite excessively--because it was a necessity for me.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 17, 2017, 08:19:47 AM
It's a loan. They are student loans. You can put a dress on a pig, its still a pig. The interest is paid by the federal govt while you are attending school, it isnt just non exeistent. Every aspect of the note is the same as every other loan except that if you have low income you can basically pay interest only. Like I said, simply using the program is not wrong, but going into school and racking up "debt" and having no intention to pay it off is wrong, morally. The program is there for those who make a big mistake and don't realize that their $40,000 a year communications degree is a terrible investment. Not for those who plan on retiring early and leaving the burden to the taxpayers still working.

he has a post started up where he now has the option to make 3x that salary.  but is considering not doing it as a lifestyle choice.  This situation just reaks of poor financial planning and considerations in picking your profession and the school and cost to obtain that profession.  as DD pointed out society is footing the bill for the lower 90% of law students who try and fail at the big name big cost universities.  Its a low risk gamble.  and IMO a reason the system should be done away with.  Fact is its part of the contract he signed so you cant fault him for using it. 

Basically the way i see this working is a person decides to chase a brass ring (which no one here focused on FIRE should really do IMO b/c it builds debt and takes a long time to get said ring)
they go to the big school that the big firms recruit in

Finish in the top 10% get into big law yay i can chase the ring and i'll repay my loans my self

Dont finish in the top 10% - dont get into big law - use REPAYE system for society to pay your loans b/c you didnt hack it in law school.

or just run up the debt and never plan to go into big law and expect society to foot your bill with the REPAYE system.

I asked this two days ago and got no response, so I will ask the exact same question: please see my REPAYE calculations and tell me how, with numbers, you are footing the bill for me, and that REPAYE is not just a delayed form of repayment in accordance with the terms of the loan where the government makes up almost all of its loan balance back anyway.

I will again represent to you that I have researched this issue every way imaginable, and can tell you that no matter how you slice it, the government gets probably 98% of its money back no matter how you repay the loan (10 year, 25 year, PAYE, IBR, REPAYE, etc.). The only exception from this is PSLF (public service loan forgiveness), in which the government does in fact forgive student loan balances in an effort to have highly qualified people work in public sector jobs.

REPAYE, IBR, and PAYE are vastly different because the "forgiven" amount is taxed as ordinary income. There is hardly any "forgiveness" because, no matter how you slice it, probably 98% of the loan is paid back via payments over 25 years or the income tax balloon at the end of the loan.  See my example above.

If you have math to prove otherwise, please share.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 17, 2017, 08:25:47 AM
so your math includes all the return on investment that money could be providing if invested and not just sitting there. or is it just an interest free repayment at 98%  and doesnt account for inflation over 25 years.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Playing with Fire UK on January 17, 2017, 09:26:22 AM
To give a different perspective, in the UK nearly all student loans are the equivalent of IBR. There is no stigma in just making the payments and then having the balance of the loan written off. The entire point is that people earning more pay more and people earning less pay less.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 09:45:05 AM
It's a loan. They are student loans. You can put a dress on a pig, its still a pig. The interest is paid by the federal govt while you are attending school, it isnt just non exeistent. Every aspect of the note is the same as every other loan except that if you have low income you can basically pay interest only. Like I said, simply using the program is not wrong, but going into school and racking up "debt" and having no intention to pay it off is wrong, morally. The program is there for those who make a big mistake and don't realize that their $40,000 a year communications degree is a terrible investment. Not for those who plan on retiring early and leaving the burden to the taxpayers still working.

he has a post started up where he now has the option to make 3x that salary.  but is considering not doing it as a lifestyle choice.  This situation just reaks of poor financial planning and considerations in picking your profession and the school and cost to obtain that profession.  as DD pointed out society is footing the bill for the lower 90% of law students who try and fail at the big name big cost universities.  Its a low risk gamble.  and IMO a reason the system should be done away with.  Fact is its part of the contract he signed so you cant fault him for using it. 

Basically the way i see this working is a person decides to chase a brass ring (which no one here focused on FIRE should really do IMO b/c it builds debt and takes a long time to get said ring)
they go to the big school that the big firms recruit in

Finish in the top 10% get into big law yay i can chase the ring and i'll repay my loans my self

Dont finish in the top 10% - dont get into big law - use REPAYE system for society to pay your loans b/c you didnt hack it in law school.

or just run up the debt and never plan to go into big law and expect society to foot your bill with the REPAYE system.

I asked this two days ago and got no response, so I will ask the exact same question: please see my REPAYE calculations and tell me how, with numbers, you are footing the bill for me, and that REPAYE is not just a delayed form of repayment in accordance with the terms of the loan where the government makes up almost all of its loan balance back anyway.

I will again represent to you that I have researched this issue every way imaginable, and can tell you that no matter how you slice it, the government gets probably 98% of its money back no matter how you repay the loan (10 year, 25 year, PAYE, IBR, REPAYE, etc.). The only exception from this is PSLF (public service loan forgiveness), in which the government does in fact forgive student loan balances in an effort to have highly qualified people work in public sector jobs.

REPAYE, IBR, and PAYE are vastly different because the "forgiven" amount is taxed as ordinary income. There is hardly any "forgiveness" because, no matter how you slice it, probably 98% of the loan is paid back via payments over 25 years or the income tax balloon at the end of the loan.  See my example above.

If you have math to prove otherwise, please share.

I dont understand your question. You are paying an interest only loan for 25 years, then leaving $100,000 bill to the tax payers. What dont you get about this? Just because your interest payments equal the total of the principle over 25 years does not mean anything. You still are not taking into account inflation and investment return.

If you think the time value of money aspect isnt important you simply have not been paying attention to anything on this forum.

To take it a step farther, you buy a house for $147,000 from your neighbor and he holds the note, you pay interest only payments for 25 years, the balance of the note is $150,000 at year 25, and you tell your neighbor, well ive paid the principle balance of the note, so im going to stop paying you now. He is like, "wth you still owe me $150,000." You say, "well I guess ill pay you $50,000 and we can call it a day." So he is still out $100,000 and a house. Your neighbor being the tax payer and your law degree being the house. Your degree with inflation is now worth alot more like the house.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 17, 2017, 10:56:06 AM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Didn't recognize your username so I decided to take a look at your post history real quick and, drumroll, your very first post...

Our accountant told us to rent our home office to our S-Corp instead of depreciating or anything else.  We've done it for years.  It is one way to move S-Corp cash to you without paying SSN and Medicare on the proceeds too.  Of course you personally have to take the rent as rent on your personal tax returns.

Ah, of course it's perfectly okay for you to optimize the tax code and pay as little to the government as possible when it benefits you.

You can't make this stuff up you guys.

Minimizing federal income tax is your obligation. Dont confuse this with getting out of a loan with a predermined interest rate. What do you expect him to do, not take deductions? Pay more than he is supposed to? You fundamentally dont understand taxes. It is your duty as a taxpayer to pay as little tax as legally possible. Do you go to the auto mechanic and when he tells you its 1,200 to fix your car, you write him a check for $2,000? It is the exact same thing.

To be quite clear here - I have posted that we did not depreciate our home office (the tax reduction option) - we took rental income from the business and had to pay personal income tax on that rental payment.  I'm not really sure how anyone thought this was tax avoidance.  The quote came from a thread on home office depreciation where I explained we did not do it. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 11:15:27 AM
I think MMM argues that the TVM matters a lot.  I don't think letting people borrow insane amounts of money for school - way over the amount for tuition and minimum room and board and then socking the trips to Europe over the summer and the high rise apartment rent is certainly screwing the rest of us high tax payers.

Didn't recognize your username so I decided to take a look at your post history real quick and, drumroll, your very first post...

Our accountant told us to rent our home office to our S-Corp instead of depreciating or anything else.  We've done it for years.  It is one way to move S-Corp cash to you without paying SSN and Medicare on the proceeds too.  Of course you personally have to take the rent as rent on your personal tax returns.

Ah, of course it's perfectly okay for you to optimize the tax code and pay as little to the government as possible when it benefits you.

You can't make this stuff up you guys.

Minimizing federal income tax is your obligation. Dont confuse this with getting out of a loan with a predermined interest rate. What do you expect him to do, not take deductions? Pay more than he is supposed to? You fundamentally dont understand taxes. It is your duty as a taxpayer to pay as little tax as legally possible. Do you go to the auto mechanic and when he tells you its 1,200 to fix your car, you write him a check for $2,000? It is the exact same thing.

To be quite clear here - I have posted that we did not depreciate our home office (the tax reduction option) - we took rental income from the business and had to pay personal income tax on that rental payment.  I'm not really sure how anyone thought this was tax avoidance.  The quote came from a thread on home office depreciation where I explained we did not do it.

There are people who do this out of convenience all the time. Yes you end up paying a little bit more in tax, but you dont have to put your home on the depreciation schedule and keep track of that for a number of years.

I was just stating that I hate when people confuse taking a tax deduction as somehow scamming or not paying their fair share. Tax is not a liability until it is due in full, you are to use every law possible to make the balance as low as possible, that lowest number is your fair share. There is no obligation to pay more than you owe at anytime. People complain about Trump not paying his fair, like there is some magical number he should have paid. Fair share=lowest amount legally possible.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 17, 2017, 11:57:43 AM
There are people who do this out of convenience all the time. Yes you end up paying a little bit more in tax, but you dont have to put your home on the depreciation schedule and keep track of that for a number of years.

I was just stating that I hate when people confuse taking a tax deduction as somehow scamming or not paying their fair share. Tax is not a liability until it is due in full, you are to use every law possible to make the balance as low as possible, that lowest number is your fair share. There is no obligation to pay more than you owe at anytime. People complain about Trump not paying his fair, like there is some magical number he should have paid. Fair share=lowest amount legally possible.

I agree: paying your "fair share" in taxes means paying the lowest amount legally possible," and using "every law possible to make the balance as low as possible, that lowest number being your fair share." In other words, utilize the provisions of the tax code to your advantage.

I agree, and I would also proffer: paying back a loan means paying back in accordance with the terms of the loan, and utilizing provisions of the loan to your advantage.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 12:01:24 PM
There are people who do this out of convenience all the time. Yes you end up paying a little bit more in tax, but you dont have to put your home on the depreciation schedule and keep track of that for a number of years.

I was just stating that I hate when people confuse taking a tax deduction as somehow scamming or not paying their fair share. Tax is not a liability until it is due in full, you are to use every law possible to make the balance as low as possible, that lowest number is your fair share. There is no obligation to pay more than you owe at anytime. People complain about Trump not paying his fair, like there is some magical number he should have paid. Fair share=lowest amount legally possible.

I agree: paying your "fair share" in taxes means paying the lowest amount legally possible," and using "every law possible to make the balance as low as possible, that lowest number being your fair share." In other words, utilize the provisions of the tax code to your advantage.

I agree, and I would also proffer: paying back a loan means paying back in accordance with the terms of the loan, and utilizing provisions of the loan to your advantage.

Does a loan have a predetermined interest rate and a liability amount? Taxes dont. You dont start the year and say, oh, my tax liability this year is $40,000, lets see what I can do to make this less.

No even close to comparable.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: ReadySetMillionaire on January 17, 2017, 12:07:27 PM
Does a loan have a predetermined interest rate and a liability amount? Taxes dont. You dont start the year and say, oh, my tax liability this year is $40,000, lets see what I can do to make this less.

No even close to comparable.

Thought it was a fair comparison considering people in here are comparing a student loan (with express provisions concerning income-based repayment) to mortgages (which are backed by collateral and have entirely different repayment and amortization structures).
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 12:26:55 PM
Does a loan have a predetermined interest rate and a liability amount? Taxes dont. You dont start the year and say, oh, my tax liability this year is $40,000, lets see what I can do to make this less.

No even close to comparable.

Thought it was a fair comparison considering people in here are comparing a student loan (with express provisions concerning income-based repayment) to mortgages (which are backed by collateral and have entirely different repayment and amortization structures).

Comparing a note to a note is apples to apples.

Tax liability is not a note, it is a liability that is purely determined on something that has not happened yet. You cant know exactly what your tax liability will be until the year is over and you calculate it. You know what your payoff for the loan will be in 10 years, because it is a note. It is a predetermined agreement that when you signed the loan documents, you stated that you had every intention to pay it in full. I know because I signed the same documents. If you signed the loan documents and you were like, "I have no intention of paying this money back," that is wrong.

This is clearly my opinion, but when talking about a law, there is the intent of the law. Im sure you understand being a lawyer. I dont think that the intent of the income based repayment program was something that was enacted for people to just bank on from the get go. It was something that is supposed to help those that are in a tough spot, that overstretched their bounds and need help. For example, do you think it would right, for a doctor, someone who racks up $400,000 of student debt, with the full intention, to only pay back 10% of his salary. Makes $400,000 per year, puts a huge amount into the a defined benefit plan to lower his AGI to somewhere around $250,000 only having to pay $25,000 a year. works for 6 years to build a fat nest egg. Then retires and lives on his investments, which keep his AGI low with the full intent to have the loan forgiven. Is that right? What he did was purely legal, within the loan provisions, but totally wrong.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: yachi on January 17, 2017, 01:38:11 PM
For example, do you think it would right, for a doctor, someone who racks up $400,000 of student debt, with the full intention, to only pay back 10% of his salary. Makes $400,000 per year, puts a huge amount into the a defined benefit plan to lower his AGI to somewhere around $250,000 only having to pay $25,000 a year. works for 6 years to build a fat nest egg. Then retires and lives on his investments, which keep his AGI low with the full intent to have the loan forgiven. Is that right? What he did was purely legal, within the loan provisions, but totally wrong.

Interestingly, a $25,000 per year payment actually fully pays a $400,000 loan at 3.4% interest in under 25 years without IBR.  It's not right that we've made early retirement more enjoyable than working as a doctor for huge money like this one is making.  We should fix that.  But many institutions may have made his job suck. 
Taking out $400,000 in loans is a huge gamble that many would not make without some type of safety net.  We need more doctors, and IBR provides a safety net should some students not make it through the program. We have bankruptcy laws to encourage entrepreneurship and investments in businesses because it's good for the country.  The assumption is if we limit the downside risk, more companies and individuals will take the chance, and the winners will outweigh the losers.  IBR provides a protection on the student risk taker that very much mirrors bankruptcy protection for other risk takers.  Since students loans (rightly) are not discharged in bankruptcy what would you suggest?

I don't think it's right that the government charged 6.8% on federal student loans in 2013, when mortgage rates were only 3.4%.  I also don't think it's right that parents can stick children with high student loans by refusing to file a FAFSA, while also refusing to chip in.  On some level, I also think the forgiveness part of IBR should have an asset test, but it doesn't and there are plenty of other areas where student borrowers get screwed.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 02:22:05 PM
For example, do you think it would right, for a doctor, someone who racks up $400,000 of student debt, with the full intention, to only pay back 10% of his salary. Makes $400,000 per year, puts a huge amount into the a defined benefit plan to lower his AGI to somewhere around $250,000 only having to pay $25,000 a year. works for 6 years to build a fat nest egg. Then retires and lives on his investments, which keep his AGI low with the full intent to have the loan forgiven. Is that right? What he did was purely legal, within the loan provisions, but totally wrong.

Interestingly, a $25,000 per year payment actually fully pays a $400,000 loan at 3.4% interest in under 25 years without IBR.  It's not right that we've made early retirement more enjoyable than working as a doctor for huge money like this one is making.  We should fix that.  But many institutions may have made his job suck. 
Taking out $400,000 in loans is a huge gamble that many would not make without some type of safety net.  We need more doctors, and IBR provides a safety net should some students not make it through the program. We have bankruptcy laws to encourage entrepreneurship and investments in businesses because it's good for the country.  The assumption is if we limit the downside risk, more companies and individuals will take the chance, and the winners will outweigh the losers.  IBR provides a protection on the student risk taker that very much mirrors bankruptcy protection for other risk takers.  Since students loans (rightly) are not discharged in bankruptcy what would you suggest?

I don't think it's right that the government charged 6.8% on federal student loans in 2013, when mortgage rates were only 3.4%.  I also don't think it's right that parents can stick children with high student loans by refusing to file a FAFSA, while also refusing to chip in.  On some level, I also think the forgiveness part of IBR should have an asset test, but it doesn't and there are plenty of other areas where student borrowers get screwed.

They would only pay $25,000 for 6 years while they are working, they would then not be required to pay anymore because it is based on income.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: bugbaby on January 17, 2017, 02:26:36 PM
For example, do you think it would right, for a doctor, someone who racks up $400,000 of student debt, with the full intention, to only pay back 10% of his salary. Makes $400,000 per year, puts a huge amount into the a defined benefit plan to lower his AGI to somewhere around $250,000 only having to pay $25,000 a year. works for 6 years to build a fat nest egg. Then retires and lives on his investments, which keep his AGI low with the full intent to have the loan forgiven. Is that right? What he did was purely legal, within the loan provisions, but totally wrong.

Interestingly, a $25,000 per year payment actually fully pays a $400,000 loan at 3.4% interest in under 25 years without IBR.  It's not right that we've made early retirement more enjoyable than working as a doctor for huge money like this one is making.  We should fix that.  But many institutions may have made his job suck. 
Taking out $400,000 in loans is a huge gamble that many would not make without some type of safety net.  We need more doctors, and IBR provides a safety net should some students not make it through the program. We have bankruptcy laws to encourage entrepreneurship and investments in businesses because it's good for the country.  The assumption is if we limit the downside risk, more companies and individuals will take the chance, and the winners will outweigh the losers.  IBR provides a protection on the student risk taker that very much mirrors bankruptcy protection for other risk takers.  Since students loans (rightly) are not discharged in bankruptcy what would you suggest?

I don't think it's right that the government charged 6.8% on federal student loans in 2013, when mortgage rates were only 3.4%.  I also don't think it's right that parents can stick children with high student loans by refusing to file a FAFSA, while also refusing to chip in.  On some level, I also think the forgiveness part of IBR should have an asset test, but it doesn't and there are plenty of other areas where student borrowers get screwed.
I agree. I posted earlier that i paid off 260k, but I fundamentally disagree with how student loan interest rates and ruthless lenders (crazy collection costs) are screwing over borrowers.

 Many, many who try to pay just can't. The reasons are many. But there is deep injustice in making student loans non-dischargeable, with interest twice the market rates.  If IBR is your only feasible option, why would you not do it?

And yes, there's always a few who will cheat the system, but that's no reason to hurt the honest majority

Sent from my Nexus 5 using Tapatalk

Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 17, 2017, 02:47:39 PM
I think that the "intentionally going into debt/not repaying" comments might be directed at me, since in my OP I note that DW and I are anticipating possibly taking out additional student loans for her to finish her grad school, and in the same post contemplate using the IBR/REPAYE program, which could result in some portion of those loans being forgiven. (Although the people who understand how REPAYE actually works will note that I will likely end up paying the entire amount one way or the other, as RSM showed in their example above.)

I think that people in this thread are conflating my OP with me saying "hey, I have a bunch of debt and I am planning to rack up a bunch more debt, check out how I'm going to get out of paying it."

While this is NOT an accurate representation of what I was saying, I understand how people would get upset if they think I'm trying to "get one over" on the taxpayer (and anyone who has had money withheld from a paycheck easily assumes the role of taxpayer in these types of discussions, regardless of whether they actually end up paying and federal income tax).

So it goes that, by that logic, I must be stealing from them personally - hence the strong negative reaction.

I think that the misinterpretation of my OP combined with the fact that I'm a lawyer, makes it easy for people to assume I'm trying to lie-cheat-and-steal my way to FIRE. This is really not the case.

When I made my OP, I was just feeling discouraged by my student loan situation and figured "heck, I might be in REPAYE for 25 years and if that ends up being the case, how should I be tracking my net worth? I know, I'll ask the mustashians."

Edit: typo

Yes I was referring to your OP. You should be able to pay off your student loans, and you should pay off your student loans.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 18, 2017, 03:53:18 AM
For example, do you think it would right, for a doctor, someone who racks up $400,000 of student debt, with the full intention, to only pay back 10% of his salary. Makes $400,000 per year, puts a huge amount into the a defined benefit plan to lower his AGI to somewhere around $250,000 only having to pay $25,000 a year. works for 6 years to build a fat nest egg. Then retires and lives on his investments, which keep his AGI low with the full intent to have the loan forgiven. Is that right? What he did was purely legal, within the loan provisions, but totally wrong.

Interestingly, a $25,000 per year payment actually fully pays a $400,000 loan at 3.4% interest in under 25 years without IBR.  It's not right that we've made early retirement more enjoyable than working as a doctor for huge money like this one is making.  We should fix that.  But many institutions may have made his job suck. 
Taking out $400,000 in loans is a huge gamble that many would not make without some type of safety net.  We need more doctors, and IBR provides a safety net should some students not make it through the program. We have bankruptcy laws to encourage entrepreneurship and investments in businesses because it's good for the country.  The assumption is if we limit the downside risk, more companies and individuals will take the chance, and the winners will outweigh the losers.  IBR provides a protection on the student risk taker that very much mirrors bankruptcy protection for other risk takers.  Since students loans (rightly) are not discharged in bankruptcy what would you suggest?

I don't think it's right that the government charged 6.8% on federal student loans in 2013, when mortgage rates were only 3.4%.  I also don't think it's right that parents can stick children with high student loans by refusing to file a FAFSA, while also refusing to chip in.  On some level, I also think the forgiveness part of IBR should have an asset test, but it doesn't and there are plenty of other areas where student borrowers get screwed.

Why shouldn't the government charge that much?  It is loaning an unsecured amount of money for an indefinite amount of time.  If student's could get better terms from a private institution - they would do it.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: yachi on January 18, 2017, 05:50:18 AM

Why shouldn't the government charge that much?  It is loaning an unsecured amount of money for an indefinite amount of time.  If student's could get better terms from a private institution - they would do it.

1.  Because student loans aren't like an unsecured loan to renovate your kitchen.  They cannot be discharged in bankruptcy and your wages can be garnished to pay them.
2.  Because the country stands more to gain from a college educated population than one that owns houses.  The government has created the marketplace where mortgages and student loans function.  They've decided to offer protections to banks that make mortgages, if they offered protections to banks to make student loans, students could get better terms from private institutions. 
3.  Because it's a rate set by Congress without regard for private lending costs
4.  The availability of Stafford loans has bullied private institutions out of the market (these loans are great for those without established credit, but not that great for those with great credit)
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: boarder42 on January 18, 2017, 05:53:48 AM

Why shouldn't the government charge that much?  It is loaning an unsecured amount of money for an indefinite amount of time.  If student's could get better terms from a private institution - they would do it.

1.  Because student loans aren't like an unsecured loan to renovate your kitchen.  They cannot be discharged in bankruptcy and your wages can be garnished to pay them.
2.  Because the country stands more to gain from a college educated population than one that owns houses.  The government has created the marketplace where mortgages and student loans function.  They've decided to offer protections to banks that make mortgages, if they offered protections to banks to make student loans, students could get better terms from private institutions. 
3.  Because it's a rate set by Congress without regard for private lending costs
4.  The availability of Stafford loans has bullied private institutions out of the market (these loans are great for those without established credit, but not that great for those with great credit)

1. because every smart kid would just file bankruptcy after graduation. 
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Iplawyer on January 18, 2017, 06:22:20 AM

Why shouldn't the government charge that much?  It is loaning an unsecured amount of money for an indefinite amount of time.  If student's could get better terms from a private institution - they would do it.

1.  Because student loans aren't like an unsecured loan to renovate your kitchen.  They cannot be discharged in bankruptcy and your wages can be garnished to pay them.
2.  Because the country stands more to gain from a college educated population than one that owns houses.  The government has created the marketplace where mortgages and student loans function.  They've decided to offer protections to banks that make mortgages, if they offered protections to banks to make student loans, students could get better terms from private institutions. 
3.  Because it's a rate set by Congress without regard for private lending costs
4.  The availability of Stafford loans has bullied private institutions out of the market (these loans are great for those without established credit, but not that great for those with great credit)

1.) Loans to renovate your kitchen are typically second mortgages or HELOCS that are backed by the home. But the premise is not relevant. The government offers these loans to people with 0 or a bad credit history.  You wouldn't get an unsecured loan to remodel your kitchen with zero or bad credit.
2.) This is not a fact, it is your opinion. Many students could fund college while working and don't really need loans and others should not go to college.
3.) Banks can do what they want when making private loans.  So what if Congress sets the rates for government loans?  If banks could make money lending to students for less they would.
4.) Bullied?  Again - if banks could make money offering loans at less interest to students - they would.  They cannot.  So they don't.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Civex on January 18, 2017, 09:01:09 PM
Posts like this reinforce that given the opportunity I would vote against student loan forgiveness outside of public service.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: Frugalman19 on January 19, 2017, 07:31:49 AM
Posts like this reinforce that given the opportunity I would vote against student loan forgiveness outside of public service.

I believe that there should be some provisions for a student who either did not complete school or simply has fallen on hard times has a way to get out of the burden of student loan debt.

I think the real issue is that children (18 years old) are allowed to sign on for such a massive amount of debt. The trend on here seems to be lawyers, I personally know 3 people that went all the way through law school and ended up changing careers because they either didnt like it or couldn't find work. To fix the problem there needs to be more vetting on the front end.
Title: Re: Intentionaly omitting student loans from net worth (IBR)
Post by: CorpRaider on March 07, 2017, 10:04:44 AM
OP, it seems reasonable.  You will obviously be aware that you have a large contingent liability that could impact your plans, but it seems no different than many other assumptions required to make any plan and then track progress against the same. 

I don't think you should include a contingent liability for cancer expenses but you are probably more likely to be diagnosed with cancer than you are to lose the IBR option through an external event (it is more likely your income will increase such that you will pay it off faster than you project but that will be reflected in your future assets growing slower than they would otherwise).

Surely reasonable people would observe there are literally hundreds if not thousands of federal subsidies and tax breaks that are of less social utility than sharing the risk of investing in higher education by offering the mere possibility of a time value of money/real interest rate discount, and limiting the application based on a 20+ year period to determine whether the benefits are really needed as nominal income advances.  The country will undoubtedly benefit, economically and otherwise, from having more citizens with higher education levels.  Some obvious examples of lower social utility incentive programs could include: mortgage interest (including on second homes), general business interest deductions, rate preferences for real estate and investment partnership income, like kind exchange deferrals, bonus and accelerated depreciation, R&D credits, oil and gas subsidies and credits, the exclusion of capital gains on the sale of primary residences, deduction of meals and entertainment expenses, preferential employment tax treatment for S corporations versus other pass through entities and sole proprietorships, etc...etc...