Author Topic: Intentionaly omitting student loans from net worth (IBR)  (Read 14504 times)

BTH7117

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #50 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 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?  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).

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #51 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. 
« Last Edit: January 13, 2017, 07:34:21 PM by ddmesser »

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #52 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.




SimpleCycle

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #53 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.

Lski'stash

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #54 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.

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #55 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.

larmando

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #56 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.

larmando

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #57 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.

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #58 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. 
« Last Edit: January 14, 2017, 05:03:09 AM by ddmesser »

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #59 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.

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #60 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.

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #61 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.
« Last Edit: January 14, 2017, 05:57:45 AM by ddmesser »

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #62 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.

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #63 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.

« Last Edit: January 14, 2017, 05:58:26 AM by ddmesser »

iris lily

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #64 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.
« Last Edit: January 14, 2017, 08:22:35 AM by iris lily »

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #65 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).

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #66 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.

WyomingGuy

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #67 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).
« Last Edit: January 15, 2017, 07:37:03 PM by WyomingGuy »

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #68 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.

bugbaby

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #69 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.


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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #70 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.

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LeRainDrop

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #71 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.

FIer_Fox

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #72 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #73 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #74 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.

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #75 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.


Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #76 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #77 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #78 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.
« Last Edit: January 17, 2017, 08:23:40 AM by ReadySetMillionaire »

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #79 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.

Playing with Fire UK

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #80 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #81 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.
« Last Edit: January 17, 2017, 09:54:11 AM by Awgolfer »

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #82 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. 

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #83 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #84 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #85 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.

ReadySetMillionaire

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #86 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).

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #87 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.

yachi

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #88 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #89 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.

bugbaby

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #90 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


Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #91 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.

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #92 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.

yachi

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #93 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)

boarder42

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #94 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. 

Iplawyer

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #95 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.

Civex

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #96 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.

Frugalman19

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #97 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.

CorpRaider

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Re: Intentionaly omitting student loans from net worth (IBR)
« Reply #98 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...
« Last Edit: March 08, 2017, 05:58:12 AM by CorpRaider »