Author Topic: Intentionaly omitting student loans from net worth (IBR)  (Read 15122 times)

FIer_Fox

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Intentionaly omitting student loans from net worth (IBR)
« 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.)

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #1 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.

tarheeldan

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #2 on: January 09, 2017, 12:31:29 PM »
  • 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

I'm a red panda

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #3 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.

intirb

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #4 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.

notactiveanymore

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #5 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.

hoodedfalcon

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #6 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.

intirb

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #7 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #8 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #9 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.)

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #10 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.

westtoeast

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #11 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...

Psychstache

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #12 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. =)


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ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #13 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.
« Last Edit: January 09, 2017, 02:25:15 PM by ReadySetMillionaire »

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #14 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.

WyomingGuy

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #15 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #16 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).

Fishindude

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #17 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. 

Proud Foot

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #18 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. 

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #19 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #20 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #21 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.

khangaroo

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #22 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

Kakashi

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #23 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. 




iris lily

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #24 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #25 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.

dcozad999

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #26 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.

notactiveanymore

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #27 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.


iris lily

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #28 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #29 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #30 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.

intirb

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #31 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #32 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.

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #33 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?

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #34 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.


« Last Edit: January 13, 2017, 09:39:47 AM by ReadySetMillionaire »

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #35 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #36 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.



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.

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #37 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.

Ryland

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #38 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!

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #39 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!!!


Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #40 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.
« Last Edit: January 13, 2017, 11:53:30 AM by Awgolfer »

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #41 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!!!



Thank you for continuing to make my point.

SimpleCycle

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #42 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)
« Last Edit: January 13, 2017, 12:06:39 PM by SimpleCycle »

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #43 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. 

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #44 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 ("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, 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?

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 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?

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #45 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 ("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, 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?

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 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."




ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #46 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #47 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #48 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.
« Last Edit: January 13, 2017, 03:19:31 PM by ReadySetMillionaire »

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #49 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
« Last Edit: January 13, 2017, 03:36:57 PM by FIer_Fox »