Author Topic: LARGE student loan  (Read 15196 times)

therethere

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Re: LARGE student loan
« Reply #50 on: December 24, 2015, 10:38:36 AM »
**Modified*** Trying to talk sense to someone who believes they are 100% right all the time is worthless....
« Last Edit: December 24, 2015, 10:43:43 AM by therethere »

ReadySetMillionaire

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Re: LARGE student loan
« Reply #51 on: December 24, 2015, 10:39:19 AM »
I dont think anyone here is trolling but you. Nobody cares about the REPAYE program here, we are just here giving sound financial advice. ReadySetMillionaire may have been giving good information regarding the OP's loan, but to say that he should try and qualify for a home is ludicrous. No matter what the OP does with his student debt, he should not be taking on more debt.

I said this:
This way when you want to buy a house, you will actually qualify for the loan. No one has mentioned that, but you have zero chance of qualifying for a mortgage with that much debt and your level of income.

Readysetmillionaire said this:
 I just want to confirm that I emphatically disagree with this sentiment, most especially the bold

Go run the numbers on a loan to income calculator and the numbers dont lie. OP wouldnt be able to qualify for a loan, and he shouldn't, how can you emphatically disagree with that? numbers are numbers. He wants $500,000 home and makes $100k. With any debt he shouldn't qualify, so it is wrong of you to say that he should do the REPAYE program to "hide" his debt from the loan company by lowering his monthly minimum payment so he can get more in debt, its simply immoral.

I understand you guys want to help, but just stick with your REPAYE advice, and only that, because you clearly don't understand much else.

If he makes $100k then he makes $8,333 per month.

He said he wants a $500k house. So he saves up the 20% and gets a $400k mortgage, 30 years, 4.5% interest rate and his payment would be $2,026/month.

If he enrolls in REPAYE his student loan payment would be $520/month (assuming he maxes 401k).

So his total income is $8,333 and his total debt payments (assuming he doesn't have a car payment) are $2,046. This gives him a back end debt/income ratio of 30.6%, easily within the range to qualify for a mortgage.

Now do I think it's a good idea to buy a $500k house so soon? No. But to say he wouldn't qualify for a mortgage is remarkably untrue.
« Last Edit: December 24, 2015, 10:45:22 AM by ReadySetMillionaire »

ReadySetMillionaire

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Re: LARGE student loan
« Reply #52 on: December 24, 2015, 10:41:04 AM »
Yeah it will repay the principal with dollars that have lost value every year due to the inflation over the 25 year period.... So its really not quite the same.

Everyone has agreed that yes, it is true, you can utilize REPAYE system to get an individual in the best financial situation possible. No one is arguing that. But please stop trying to argue that its morally right and even stevens because you never fulfill the terms of the loan agreement. PERIOD.

These repayment plans are in the loan contract I signed. How is fully repaying the loan per the terms of the loan contract "not fulfilling the terms of the loan agreement"?

ReadySetMillionaire

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Re: LARGE student loan
« Reply #53 on: December 24, 2015, 10:47:23 AM »
**Modified*** Trying to talk sense to someone who believes they are 100% right all the time is worthless....
LOL. You just don't have an answer to my question.

Ddalz

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Re: LARGE student loan
« Reply #54 on: December 24, 2015, 11:21:32 AM »
ReadySetMillionaire: Thanks for the numbers and recommendation about the REPAYE program. I am trying to determine if it would be right for me. From your example of the person making $160,000/year he still payed ~$100k more but had 15 years more to do it (is that really worth it?).
You also say if I start making more money (which I intend to do fairly quickly-closer to $200k) to start paying it off faster. Wouldn't this defeat the purpose of the REPAYE program and effectively take away its tax subsidization advantage?

My interest rates range from 5.4%-7.9% but average out to about 6% (majority of the bigger ones are in the 5.4% range). If I could get a fixed interest rate of close to 5% would this then make more sense than REPAYE? 

Once you start the REPAYE program do you have to stay in it or can you opt out and refinance?

It's difficult to commit to paying something for 25 years.

I graduate in about 4.5 months. I will be joining my father into private practice in the medical field (don't want to be too specific here), which I will eventually take over.  As for 401k plan, since it is a small practice I don't believe he has a 401k plan for employees, so I'm not exactly sure what pre-tax retirement plan I will be putting my money into at the moment, if any(I'm not yet familiar with small business retirement plans yet).

Frugalman19

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Re: LARGE student loan
« Reply #55 on: December 24, 2015, 11:40:28 AM »
I dont think anyone here is trolling but you. Nobody cares about the REPAYE program here, we are just here giving sound financial advice. ReadySetMillionaire may have been giving good information regarding the OP's loan, but to say that he should try and qualify for a home is ludicrous. No matter what the OP does with his student debt, he should not be taking on more debt.

I said this:
This way when you want to buy a house, you will actually qualify for the loan. No one has mentioned that, but you have zero chance of qualifying for a mortgage with that much debt and your level of income.

Readysetmillionaire said this:
 I just want to confirm that I emphatically disagree with this sentiment, most especially the bold

Go run the numbers on a loan to income calculator and the numbers dont lie. OP wouldnt be able to qualify for a loan, and he shouldn't, how can you emphatically disagree with that? numbers are numbers. He wants $500,000 home and makes $100k. With any debt he shouldn't qualify, so it is wrong of you to say that he should do the REPAYE program to "hide" his debt from the loan company by lowering his monthly minimum payment so he can get more in debt, its simply immoral.

I understand you guys want to help, but just stick with your REPAYE advice, and only that, because you clearly don't understand much else.

If he makes $100k then he makes $8,333 per month.

He said he wants a $500k house. So he saves up the 20% and gets a $400k mortgage, 30 years, 4.5% interest rate and his payment would be $2,026/month.

If he enrolls in REPAYE his student loan payment would be $520/month (assuming he maxes 401k).

So his total income is $8,333 and his total debt payments (assuming he doesn't have a car payment) are $2,046. This gives him a back end debt/income ratio of 30.6%, easily within the range to qualify for a mortgage.

Now do I think it's a good idea to buy a $500k house so soon? No. But to say he wouldn't qualify for a mortgage is remarkably untrue.

It will be very close, like I said he probably wont qualify. You're forgetting property taxes and home owners insurance as well and if he lives in a gated community which is very common in silicon valley thats another $900 a month, so more like $3450 per month ($458 prop tax, $100 insurance, $350 HOA), so it will be closer to 41%. All of this is assuming he saves $100k! My numbers were assuming a mortgage of $500k, not $400k. like OP said 400-600K for the house. Your situation all rides on the fact that he needs to use this REPAYE system to literally hide what his real debt obligation is, which will just put him is a worse debt situation. It might be true for this perfect situation, if everything falls into place he might qualify, but if one thing changes OP doesn't not qualify, that is why I stand by my original statement. If OP doesn't contribute max to 401(k), if OP doesn't save $100K, if interest rates stay this low for the next 3 years, because thats how long it will take to save $100,000, what if housing prices go up and OPs loan is for $435,000, what if OP has terrible credit!!! All of these are BIG what ifs, that make my statement REMARKABLY true.

My original statement was that he wouldn't even qualify for a loan with the debt he has, because of the checks and balances that are in place to keep the economy from doing what it did in 2008. What you are suggesting is for someone to use a loophole to qualify for a loan that conventionally they would not qualify for, I personally think that is unethical. Doing things like this is what got America into the mess it was in, if OP losses his job or interest rates go up, hes screwed.

You said you dont think it is a good idea for OP to go get a Mortgage?? than why are you arguing with the logic that is clear above. The whole community that is associated with this site is about not keeping up with the Jones', its about making good choices financially to get yourself to FIRE faster. Telling OP to use a government subsidized program to literally hide his debt so he can make a terrible financial decision is unethical man, there's no other way to say it.  Like I said I understand that youre trying to help, but dont spin your REPAYE program to make someone get into more debt, its just bad finances and unethical.

Cathy

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Re: LARGE student loan
« Reply #56 on: December 24, 2015, 12:19:09 PM »
... 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?
« Last Edit: December 24, 2015, 12:23:13 PM by Cathy »

Frugalman19

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Re: LARGE student loan
« Reply #57 on: December 24, 2015, 12:41:57 PM »
... 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?

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.

robartsd

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Re: LARGE student loan
« Reply #58 on: December 24, 2015, 01:02:21 PM »
ReadySetMillionaire: Thanks for the numbers and recommendation about the REPAYE program. I am trying to determine if it would be right for me. From your example of the person making $160,000/year he still payed ~$100k more but had 15 years more to do it (is that really worth it?).
You also say if I start making more money (which I intend to do fairly quickly-closer to $200k) to start paying it off faster. Wouldn't this defeat the purpose of the REPAYE program and effectively take away its tax subsidization advantage?

My interest rates range from 5.4%-7.9% but average out to about 6% (majority of the bigger ones are in the 5.4% range). If I could get a fixed interest rate of close to 5% would this then make more sense than REPAYE? 
You can use REPAYE or other alternative payment plan to reduce your minimum payments, then pay extra to eliminate the higher interest loans faster.

Once you start the REPAYE program do you have to stay in it or can you opt out and refinance?
I don't think payment plan choices that you have made in the past will limit your consolidation options - but consolidation will limit your repayment options.

It's difficult to commit to paying something for 25 years.
You can always pay it off as fast as you want.

I graduate in about 4.5 months. I will be joining my father into private practice in the medical field (don't want to be too specific here), which I will eventually take over.  As for 401k plan, since it is a small practice I don't believe he has a 401k plan for employees, so I'm not exactly sure what pre-tax retirement plan I will be putting my money into at the moment, if any(I'm not yet familiar with small business retirement plans yet).
You might encourage your dad to look into retirement plan options - small business certainly can sponsor 401k plans. Most here would recommend something through Vanguard. One rule I do know is that the plans available have to be available to all employees. The business might not offer a match, but it would take very little to offer a 401k through Vanguard to all employees who wish to make their own contributions.

ReadySetMillionaire

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Re: LARGE student loan
« Reply #59 on: December 24, 2015, 01:21:21 PM »
ReadySetMillionaire: Thanks for the numbers and recommendation about the REPAYE program. I am trying to determine if it would be right for me. From your example of the person making $160,000/year he still payed ~$100k more but had 15 years more to do it (is that really worth it?).
You also say if I start making more money (which I intend to do fairly quickly-closer to $200k) to start paying it off faster. Wouldn't this defeat the purpose of the REPAYE program and effectively take away its tax subsidization advantage?

My interest rates range from 5.4%-7.9% but average out to about 6% (majority of the bigger ones are in the 5.4% range). If I could get a fixed interest rate of close to 5% would this then make more sense than REPAYE? 

Once you start the REPAYE program do you have to stay in it or can you opt out and refinance?

It's difficult to commit to paying something for 25 years.

I graduate in about 4.5 months. I will be joining my father into private practice in the medical field (don't want to be too specific here), which I will eventually take over.  As for 401k plan, since it is a small practice I don't believe he has a 401k plan for employees, so I'm not exactly sure what pre-tax retirement plan I will be putting my money into at the moment, if any(I'm not yet familiar with small business retirement plans yet).

Ddalz did a pretty good job of responding to your questions and his answers are accurate.

I would urge you to think about using REPAYE not as a long term solution, but as a hedge. What if you lose your job? What if you become disabled? What if something unpredicted happens to your profession?

If you had refinanced  your loans, you think the bank will give a shit that you were overpaying? That you fell on hard times? Of course not. They will sue you and get theirs.

So you can stay on REPAYE, have a low payment, and pay off the high interest rate loans. If something happens to you, you've been storing a bunch of money away AND you still have the protections of federal loans (three years forbearance, no questions asked; plus having payment go to $0 if your income is $0). That's worth the extra couple percent interest to me.

And when you do start making $200k, sure, knock out the loans. REPAYE will have cost you, what, maybe $10-15k more (if you rapidly pay it off once you make high income)? Don't you think that price is worth the insurance that federal loans provide?

ReadySetMillionaire

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Re: LARGE student loan
« Reply #60 on: December 24, 2015, 01:41:02 PM »
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.

Sorry for not being as judicious as Cathy, but for the love of God, get off your soap box.

What do you make of the folks at RootOfGood using every deduction, credit, and tax trick in the book to pay $150 of income tax when earning $150,000 (http://rootofgood.com/make-six-figure-income-pay-no-tax/  Nothing? Of course not! Because those are the laws in place and they are using them to their advantage.

What do you make of the posters on here using conversion ladders to pay no income tax? Nothing? Of course not! Because it's allowed by the tax code.

What do you make of the posters on here who have rental properties? They frequently refinance their homes to new 30 year mortgages to lower their debt/income ratio so they can buy more properties. Are they being immoral? Of course not! Because they are doing what's in their best interest.

On this note, let's change the facts here. Let's say OP owned a $500,000 home that he'd been paying for ten years and had $294,000 left to go; and he posted about wanting to buy a $500,000 house, renting his current house, and he wanted to know how he could make it work. Surely one of the rental enthusiasts on this board would (rightfully) say, "OP, refinance your current home to a 30 year term to lower your debt/income ratio." Nobody would consider this immoral, nobody would consider it as hiding debts. It would be what any sensible person would do in the circumstance.

So it's not immoral to recommend OP use REPAYE to lower his debt/income ratio for the same reason it's not immoral to recommend refinancing. As Cathy pointed out, OP would be exercising an option that is expressly permitted by the note. OP would be a fool not to at least look into REPAYE given the facts as he described them.

Frugalman19

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Re: LARGE student loan
« Reply #61 on: December 24, 2015, 02:29:42 PM »
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.

Sorry for not being as judicious as Cathy, but for the love of God, get off your soap box.

What do you make of the folks at RootOfGood using every deduction, credit, and tax trick in the book to pay $150 of income tax when earning $150,000 (http://rootofgood.com/make-six-figure-income-pay-no-tax/  Nothing? Of course not! Because those are the laws in place and they are using them to their advantage.

What do you make of the posters on here using conversion ladders to pay no income tax? Nothing? Of course not! Because it's allowed by the tax code.

What do you make of the posters on here who have rental properties? They frequently refinance their homes to new 30 year mortgages to lower their debt/income ratio so they can buy more properties. Are they being immoral? Of course not! Because they are doing what's in their best interest.

On this note, let's change the facts here. Let's say OP owned a $500,000 home that he'd been paying for ten years and had $294,000 left to go; and he posted about wanting to buy a $500,000 house, renting his current house, and he wanted to know how he could make it work. Surely one of the rental enthusiasts on this board would (rightfully) say, "OP, refinance your current home to a 30 year term to lower your debt/income ratio." Nobody would consider this immoral, nobody would consider it as hiding debts. It would be what any sensible person would do in the circumstance.

So it's not immoral to recommend OP use REPAYE to lower his debt/income ratio for the same reason it's not immoral to recommend refinancing. As Cathy pointed out, OP would be exercising an option that is expressly permitted by the note. OP would be a fool not to at least look into REPAYE given the facts as he described them.

Cathy also pointed out that a lender could ask for the loan balance, and probably would not approve the loan, like I said from the beginning, which you emphatically disagreed with.


You don't get it, and it seems it's not sinking in for you. All of the examples you just stated did not put the person in worse financial shape, like what you suggested. Taking out a loan on an appreciating asset to buy an income producing investment is not the same as having a loan on an intangible object like a degree. It's just dead weight debt. It's not appreciating in value. You're comparing apples and oranges, and really poorly at that.

Like I've said 5 times already, but you must have an issue with comprehending it, the REPAYE program is not immoral, and I applaud you for showing people it. If it makes sense for the OP to use it, good, use it. Like I've said a number of times, people come here for financial advice to get in a better place financially. The OP wants to be in a better place financially. So telling him to literally hide his debt from lenders to qualify for more uneeded debt by using a govt program is wrong. If the numbers were different we wouldn't be having this conversation, if the numbers were closer to your personal numbers, we wouldn't be having this convo, but the numbers are way way off.
 

« Last Edit: December 24, 2015, 02:39:47 PM by Awgolfer »

Cathy

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Re: LARGE student loan
« Reply #62 on: December 24, 2015, 02:38:39 PM »
I didn't express a view on whether the original poster will be able to qualify for a mortgage loan or whether it is a good idea for him or her to attempt to do so. I just said it didn't implicate a moral issue either way.

ReadySetMillionaire

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Re: LARGE student loan
« Reply #63 on: December 24, 2015, 02:49:11 PM »
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.

Sorry for not being as judicious as Cathy, but for the love of God, get off your soap box.

What do you make of the folks at RootOfGood using every deduction, credit, and tax trick in the book to pay $150 of income tax when earning $150,000 (http://rootofgood.com/make-six-figure-income-pay-no-tax/  Nothing? Of course not! Because those are the laws in place and they are using them to their advantage.

What do you make of the posters on here using conversion ladders to pay no income tax? Nothing? Of course not! Because it's allowed by the tax code.

What do you make of the posters on here who have rental properties? They frequently refinance their homes to new 30 year mortgages to lower their debt/income ratio so they can buy more properties. Are they being immoral? Of course not! Because they are doing what's in their best interest.

On this note, let's change the facts here. Let's say OP owned a $500,000 home that he'd been paying for ten years and had $294,000 left to go; and he posted about wanting to buy a $500,000 house, renting his current house, and he wanted to know how he could make it work. Surely one of the rental enthusiasts on this board would (rightfully) say, "OP, refinance your current home to a 30 year term to lower your debt/income ratio." Nobody would consider this immoral, nobody would consider it as hiding debts. It would be what any sensible person would do in the circumstance.

So it's not immoral to recommend OP use REPAYE to lower his debt/income ratio for the same reason it's not immoral to recommend refinancing. As Cathy pointed out, OP would be exercising an option that is expressly permitted by the note. OP would be a fool not to at least look into REPAYE given the facts as he described them.

Cathy also pointed out that a lender could ask for the loan balance, and probably would not approve the loan, like I said from the beginning, which you emphatically disagreed with.


You don't get it, and it seems it's not sinking in for you. All of the examples you just stated did not put the person in worse financial shape, like what you suggested. Taking out a loan on an appreciating asset to buy an income producing investment is not the same as having a loan on an intangible object like a degree. It's just dead weight debt. It's not appreciating in value. You're comparing apples and oranges, and really poorly at that.

Like I've said 5 times already, but you must have an issue with comprehending it, the REPAYE program is not immoral, and I applaud you for showing people it. If it makes sense for the OP to use it, good, use it. Like I've said a number of times, people come here for financial advice to get in a better place financially. The OP wants to be in a better place financially. So telling him to literally hide his debt from lenders to qualify for more uneeded debt by using a govt program is wrong. If the numbers were different we wouldn't be having this conversation, if the numbers were closer to your personal numbers, we wouldn't be having this convo, but the numbers are way way off.

Fair enough. We might just be two ships passing in the dark, because I too think it's probably way too soon to think about home ownership. Just saying that he might be able to use REPAYE as a hedge and then, once he's making $200,000 per year, then he will have both the assets and financial resources to make that purchases.

Frugalman19

  • Bristles
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  • Posts: 257
Re: LARGE student loan
« Reply #64 on: December 24, 2015, 02:50:59 PM »
I didn't express a view on whether the original poster will be able to qualify for a mortgage loan or whether it is a good idea for him or her to attempt to do so. I just said it didn't implicate a moral issue either way.

Poorly written sentence on my part.

TheDudeReturns

  • 5 O'Clock Shadow
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  • Posts: 36
Re: LARGE student loan
« Reply #65 on: December 24, 2015, 06:14:17 PM »
ReadySetMillionaire: Thanks for the numbers and recommendation about the REPAYE program. I am trying to determine if it would be right for me. From your example of the person making $160,000/year he still payed ~$100k more but had 15 years more to do it (is that really worth it?).
You also say if I start making more money (which I intend to do fairly quickly-closer to $200k) to start paying it off faster. Wouldn't this defeat the purpose of the REPAYE program and effectively take away its tax subsidization advantage?

My interest rates range from 5.4%-7.9% but average out to about 6% (majority of the bigger ones are in the 5.4% range). If I could get a fixed interest rate of close to 5% would this then make more sense than REPAYE? 

Once you start the REPAYE program do you have to stay in it or can you opt out and refinance?

It's difficult to commit to paying something for 25 years.

I graduate in about 4.5 months. I will be joining my father into private practice in the medical field (don't want to be too specific here), which I will eventually take over.  As for 401k plan, since it is a small practice I don't believe he has a 401k plan for employees, so I'm not exactly sure what pre-tax retirement plan I will be putting my money into at the moment, if any(I'm not yet familiar with small business retirement plans yet).

OP: READ THIS! As you are graduating soon, you will actually be eligible for PAYE, which is like REPAYE x10. Seriously. If you are in medicine, take some time to look over the StudentDoctor.net forums, as there are plenty of doctors $250k-$500k in debt who have already done the math. Under PAYE, the terms are so good that it literally makes zero sense in purely financial terms to pay them off early.

Read this as well:

http://askheatherjarvis.com/blog/pay-as-you-earn-hotter-than-IBR

"Under PAYE only, capitalization of interest is limited to 10 percent of the original balance."

"If you repay under PAYE, any remaining balance will be forgiven after 20 years of qualifying payments."

"The annual PAYE repayment amount is 10 percent of the difference between your AGI and 150 percent of the Poverty Guideline for your family size."

^^^ Seriously, READ THAT!

OP is also in private practice, meaning he has a lot more control over his income than us peons. He could make $100k in income, but then have a decent amount in equity or other self-employed person style retirement vehicles. SEP-IRA for one, and there are several others.

Also, as OP has a private practice option available, more than likely they will make more for less effort running the family business. A house could make some sense, though I would recommend a duplex or something if OP wants the hassle and/or isn't in a relationship. With parent's income for a cosign, OP could get a FHA 30 year loan at low rates for only 3% down or something crazy. With interest rates on these loans at 4%-5%, and the long-run 100 year return on housing at around 4%, you would be getting the house for very little or even free in the long-run on just the appreciation, not to mention if we ever have a return to Volcker style inflation. If loan rates rose to 6%-7% or more, and you were sitting on a 30-year FHA loan at 4%-5%, you'd be in a sweet position.

ReadySetMillionaire: Keep up the good work, but you won't placate the complainypants on here :P