Author Topic: Student Loan Forgiveness  (Read 10907 times)

Keynes'UpperLip

  • 5 O'Clock Shadow
  • *
  • Posts: 10
  • Location: Bay Area
Student Loan Forgiveness
« on: April 07, 2014, 11:35:15 PM »
After reading http://www.mrmoneymustache.com/2014/04/06/frugal_living_in_manhattan/, I'm wondering how people feel about student loan forgiveness in general and public service loan forgiveness in particular.

MDM

  • Senior Mustachian
  • ********
  • Posts: 11477
Re: Student Loan Forgiveness
« Reply #1 on: April 08, 2014, 12:03:39 AM »
In general - no forgiveness.  People generally aren't forced to take a student loan, so they ought not expect "it doesn't matter" if they choose not to pay it.

For public service work - maybe.  If said work is truly low paid but does require college education and truly beneficial for society, then a case can be made.  The devil is in the details.

johnintaiwan

  • Bristles
  • ***
  • Posts: 357
  • Location: Tainan, Taiwan
Re: Student Loan Forgiveness
« Reply #2 on: April 08, 2014, 12:23:09 AM »
It is too bad that they are stuck with the loan for life and can't get rid of it through bankruptcy (at least in most cases), but then again they didn't have to take out that loan. I don't think they should be forgiven. But I think something needs to be done to prevent people from getting into crazy amounts of student loan debt in the first place. Most of those who take them out have no idea what they are getting into, and everyone tells them that is what you have to do to get an education and get a job. I feel a little sorry for some who are in a bad situation regarding their student loans.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Student Loan Forgiveness
« Reply #3 on: April 08, 2014, 12:34:15 AM »
Do you mean are they good ideas or is it ethical for someone to take advantage of them? I don't know if I think they are good policies or not. Since they are here, I would not judge anyone or think it unethical for anyone to use them.

When I was eligible for grant money in college, I felt weird taking it because I knew I didn't need it. But then I realized I "need" it just as much as the average student, so I took it.

Keynes'UpperLip

  • 5 O'Clock Shadow
  • *
  • Posts: 10
  • Location: Bay Area
Re: Student Loan Forgiveness
« Reply #4 on: April 09, 2014, 09:59:32 AM »
I intentionally left the prompt a bit vague, to allow for different interpretations and responses.  There seems to be a strong "personal responsibility" vibe here, which I understand and to large degree agree with. But I often feel like my interpretation of it differs from some others' here. From an ethical perspective, I would for example hold a person who invests in companies that are causing climate change much more culpable than a person who chooses to participate in a student loan forgiveness program. But I digress.

I guess my larger concern is the effect that large student debt (and other large debts in general) is having on our society as a whole. When people go into debt at a young age, at the beginning of their career, their options immediately become limited. Yes, in some sense their options increase because they have an education, but they also decrease because now they are required to have an income that covers not just their living expenses, but also their loan payments, which stretch out to the horizon as far as they can see. They become risk averse, because they have more to lose.

We seem to have a societal presumption that it is normal for a young person to go into debt. Going into debt through credit cards and student loans and one day perhaps through a mortgage, is effectively a rite of passage to becoming to an adult in our culture. Indebtedness is thus baked into us during the time of our lives when we are forming our adult identities. I don't think this is a coincidence. I also don't think it is part of some grand scheme by a nefarious cabal. But I do think it is a cultural pattern that has evolved to keep the preponderance of our citizens docile and beholden to the status quo. I think debt kills our dreams, both for our own lives and for larger societal change.   

I wished I'd realized this before grad school.  So, I guess I see student loan forgiveness as a potential opportunity, for both me and many others, to revive our dreams. Going into debt is still an individual's choice, to be sure. But it's like a form where you have to check the box to opt out. If, as a young person, you don't read the "form of life" closely enough, you're not going to know to check the "opt out of debt" box. I'd be interested to hear others' thoughts on this. Thanks for reading.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Student Loan Forgiveness
« Reply #5 on: April 09, 2014, 06:55:46 PM »
I don't think it is unethical to use the student loan forgiveness. The website about it explains it very clearly out in the open, and as far as I know a person does not have to do anything tricky to use it. If I remember correctly, the website actually encourages people to choose the payment plan that forgives the most debt. I do wonder who picks up the tab though. My lady may be eligible for it and I will probably encourage her to use it. I actually think it would be kinda dumb for a person to decline if they are eligible.

From an ethical perspective, I would for example hold a person who invests in companies that are causing climate change much more culpable than a person who chooses to participate in a student loan forgiveness program.

Guilty, along with anyone else who invests in the whole market. How do you invest while avoiding those companies?

Keynes'UpperLip

  • 5 O'Clock Shadow
  • *
  • Posts: 10
  • Location: Bay Area
Re: Student Loan Forgiveness
« Reply #6 on: April 10, 2014, 08:54:01 AM »
The process for enrolling is pretty straightforward. I think your lady would be eligible if she works for a 501(c)3 or a government agency.

As for companies causing climate change, I am also invested in them, though against my will. My employer's pension mandatorily invests a portion of our income every month and that $43b pension fund has significant holdings in fossil fuel stocks. As far as I can tell, there's no way to exclude oneself from the pension plan or direct the money to be invested elsewhere. I've begun a petition to get the fund to divest from fossil fuels, but not much has come of it yet.

As for elective investments, I don't invest in mutual funds or the market as a whole. I have some investments in REITs, government bonds, Lending Club, and a company called Mosaic that facilitates solar projects. I understand this approach is unorthodox and contrary to typical investment advice.  I generally don't purchase goods or services from large corporations, and I don't feel comfortable investing in them. I understand that this is aberrant.

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 40
  • Location: Oregon
Re: Student Loan Forgiveness
« Reply #7 on: April 10, 2014, 10:24:37 AM »
I don't think it's unethical, it's just almost always a terrible idea. If you were already planning on spending your career in low-paying public service, then by all means take advantage of it. It is there to encourage people to take those jobs, so if that is your dream, go for it!

BUT...usually when people talk about student loan forgiveness it is in the context of choosing between regular employment and paying off large sums of student loans vs. going into public service specifically for the loan forgiveness benefit. Choosing the latter almost always results in a net negative outcome. It sounds great at first, because large student loans feel like a big burden, and people want to be able to stop worrying about them and put them out of mind. But add up how much income you will sacrifice over your lifetime. I have never seen a case study where it worked out to be financially beneficial to choose public service over private. I'm sure it could exist, but it would be pretty rare.

The only real reason to choose the lower paying option is because it is actually what you want to be doing. If that is the case, if public service is your dream, then you are already aware of what it will cost financially to pursue it. Loan forgiveness just takes the edge off.

CDP45

  • Pencil Stache
  • ****
  • Posts: 509
Re: Student Loan Forgiveness
« Reply #8 on: April 10, 2014, 06:00:54 PM »
The process for enrolling is pretty straightforward. I think your lady would be eligible if she works for a 501(c)3 or a government agency.

As for companies causing climate change, I am also invested in them, though against my will. My employer's pension mandatorily invests a portion of our income every month and that $43b pension fund has significant holdings in fossil fuel stocks. As far as I can tell, there's no way to exclude oneself from the pension plan or direct the money to be invested elsewhere. I've begun a petition to get the fund to divest from fossil fuels, but not much has come of it yet.

As for elective investments, I don't invest in mutual funds or the market as a whole. I have some investments in REITs, government bonds, Lending Club, and a company called Mosaic that facilitates solar projects. I understand this approach is unorthodox and contrary to typical investment advice.  I generally don't purchase goods or services from large corporations, and I don't feel comfortable investing in them. I understand that this is aberrant.

What about those government bonds used to buy military bombs?? Are you comfortable about this: http://web.mit.edu/humancostiraq/

The problem with student loans is they trick stupid people into thinking they're smart by having PHD behind their name.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Student Loan Forgiveness
« Reply #9 on: April 10, 2014, 10:15:13 PM »
I don't think it's unethical, it's just almost always a terrible idea. If you were already planning on spending your career in low-paying public service, then by all means take advantage of it. It is there to encourage people to take those jobs, so if that is your dream, go for it!

BUT...usually when people talk about student loan forgiveness it is in the context of choosing between regular employment and paying off large sums of student loans vs. going into public service specifically for the loan forgiveness benefit. Choosing the latter almost always results in a net negative outcome. It sounds great at first, because large student loans feel like a big burden, and people want to be able to stop worrying about them and put them out of mind. But add up how much income you will sacrifice over your lifetime. I have never seen a case study where it worked out to be financially beneficial to choose public service over private. I'm sure it could exist, but it would be pretty rare.

The only real reason to choose the lower paying option is because it is actually what you want to be doing. If that is the case, if public service is your dream, then you are already aware of what it will cost financially to pursue it. Loan forgiveness just takes the edge off.

Some people would be interested in a public service job even without the loan forgiveness. Some of these jobs are great in my opinion. Examples are Speech Pathologists (that's my lady's field), Psychologists, and Therapists. (I think professionals that work in hospitals may qualify too.) They may make more in the private sector, but in schools they can have good benefits and summers off. If you want to do this anyway, why not use the loan forgiveness?

I agree with what I think your point is though: a person should probably not use the public service loan forgiveness as a reason to take a public service job.
« Last Edit: April 10, 2014, 10:32:02 PM by bikebum »

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1301
  • Age: 40
  • Location: Missouri
Re: Student Loan Forgiveness
« Reply #10 on: April 12, 2014, 04:45:12 AM »
I recently graduated college with a degree in Criminal Justice/Law Enforcement, and I plan to enter the field of law enforcement. I accrued a significant amount of student loan debt while in college.

While I was in school, I learned about public service loan forgiveness. I didn't realize that option existed before I enrolled in school. But once I learned more about it, I realized it was perfect for me and my situation. Personally, I have no qualms about taking advantage of the opportunity to work ten years in a field I already planned to work in, and then have the remainder of my student loans forgiven. But I'm obviously biased as it will significantly help me.

If it's "OK" for someone to use the program when they purposely plan it out from the beginning may be a different debate. In my case, whether that changes the situation or not, I did not plan it ahead of time, yet I will very likely be able to use the program in the future.

stealmystapler

  • 5 O'Clock Shadow
  • *
  • Posts: 32
Re: Student Loan Forgiveness
« Reply #11 on: April 15, 2014, 10:53:17 AM »
I don't think that the program is unethical, but I do think that it presents some tricky problems.

I've considered going that route - I'm almost a year into a civil service job as a historian. I love this job and probably won't leave, but ten years is a long time. A great opportunity could come up, or budgets could shrink. Then I'd be kicking myself for only paying the minimums.

I'm overpaying on my loans right now, and they'll be out of the picture in less than four years. I'd rather front the money and get them out of my life. So, essentially, I'd rather take the route I can control than wait for loan forgiveness and cross my fingers.

CorpRaider

  • Bristles
  • ***
  • Posts: 442
    • The Corpraider Blog
Re: Student Loan Forgiveness
« Reply #12 on: April 16, 2014, 10:00:08 AM »
1) I think this would be on the bottom of most rational lists of tax and financial incentives Congress has instituted for public policy reasons.

2) I see no more ethical issues than using a 401(k) or deducting charitible contributions.

3) It seems to me that if you save and invest the portion of the payments (accelerated too) which are foregone under the IBR/PSLF programs, you're not risking a lot so long as your after tax return is in the same region of your after tax rates on your student loans.  Depending on circumstances, one may be balancing this risk against a very high probability of a large increase in net worth if/when the loans are forgiven.
« Last Edit: April 16, 2014, 10:04:18 AM by CorpRaider »

AJ

  • Pencil Stache
  • ****
  • Posts: 906
  • Age: 40
  • Location: Oregon
Re: Student Loan Forgiveness
« Reply #13 on: April 16, 2014, 10:03:58 AM »
I don't think it's unethical, it's just almost always a terrible idea. If you were already planning on spending your career in low-paying public service, then by all means take advantage of it. It is there to encourage people to take those jobs, so if that is your dream, go for it!

BUT...usually when people talk about student loan forgiveness it is in the context of choosing between regular employment and paying off large sums of student loans vs. going into public service specifically for the loan forgiveness benefit. Choosing the latter almost always results in a net negative outcome. It sounds great at first, because large student loans feel like a big burden, and people want to be able to stop worrying about them and put them out of mind. But add up how much income you will sacrifice over your lifetime. I have never seen a case study where it worked out to be financially beneficial to choose public service over private. I'm sure it could exist, but it would be pretty rare.

The only real reason to choose the lower paying option is because it is actually what you want to be doing. If that is the case, if public service is your dream, then you are already aware of what it will cost financially to pursue it. Loan forgiveness just takes the edge off.

Some people would be interested in a public service job even without the loan forgiveness. Some of these jobs are great in my opinion. Examples are Speech Pathologists (that's my lady's field), Psychologists, and Therapists. (I think professionals that work in hospitals may qualify too.) They may make more in the private sector, but in schools they can have good benefits and summers off. If you want to do this anyway, why not use the loan forgiveness?

I agree with what I think your point is though: a person should probably not use the public service loan forgiveness as a reason to take a public service job.

Well, yes. That was exactly my point.

CorpRaider

  • Bristles
  • ***
  • Posts: 442
    • The Corpraider Blog
Re: Student Loan Forgiveness
« Reply #14 on: April 16, 2014, 10:06:35 AM »
yeah, its just supplemental deferred compensation.  Many private employers offer similar programs.  Most professionals could make much more in the private sector.

bikebum

  • Pencil Stache
  • ****
  • Posts: 562
  • Location: Nor Cal
Re: Student Loan Forgiveness
« Reply #15 on: April 16, 2014, 01:28:42 PM »
I don't think it's unethical, it's just almost always a terrible idea. If you were already planning on spending your career in low-paying public service, then by all means take advantage of it. It is there to encourage people to take those jobs, so if that is your dream, go for it!

BUT...usually when people talk about student loan forgiveness it is in the context of choosing between regular employment and paying off large sums of student loans vs. going into public service specifically for the loan forgiveness benefit. Choosing the latter almost always results in a net negative outcome. It sounds great at first, because large student loans feel like a big burden, and people want to be able to stop worrying about them and put them out of mind. But add up how much income you will sacrifice over your lifetime. I have never seen a case study where it worked out to be financially beneficial to choose public service over private. I'm sure it could exist, but it would be pretty rare.

The only real reason to choose the lower paying option is because it is actually what you want to be doing. If that is the case, if public service is your dream, then you are already aware of what it will cost financially to pursue it. Loan forgiveness just takes the edge off.

Some people would be interested in a public service job even without the loan forgiveness. Some of these jobs are great in my opinion. Examples are Speech Pathologists (that's my lady's field), Psychologists, and Therapists. (I think professionals that work in hospitals may qualify too.) They may make more in the private sector, but in schools they can have good benefits and summers off. If you want to do this anyway, why not use the loan forgiveness?

I agree with what I think your point is though: a person should probably not use the public service loan forgiveness as a reason to take a public service job.

Well, yes. That was exactly my point.

I just don't think jobs that qualify for the public service loan forgiveness are as bad as you made them sound.

Aki

  • 5 O'Clock Shadow
  • *
  • Posts: 33
  • Location: USA
Re: Student Loan Forgiveness
« Reply #16 on: April 17, 2014, 07:50:41 PM »
I think if you borrow it you should pay it back, no forgiveness.  I had to and I work in the public sector.  I've seen too many people borrow lots, get good public service jobs, and continue to live way outside of their means (new cars, multiple trips, eating out a lot)...all with the plan of having the rest of their loans forgiven.  That said, the cost of higher ed should be much more affordable.  And if there is any loan forgiveness, it should be for tuition only and there should be a cap on it.

defenestrate

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: Student Loan Forgiveness
« Reply #17 on: July 13, 2014, 05:21:40 PM »
I am in this situation. I took out a lot of student debt to pay for school, and could have paid for it out of pocket. Knowing I work for a 501(c) 3, and the opportunity to take advantage of the loan forgiveness was the main reason for taking the loans (and that the stock market crashed 30% or more).

Is it a better deal to wait and get the "forgiveness" Maybe, maybe not--lots of variables. I am still on the fence on what I will do. I know that some people here believe this is unethical, but government student lenders are not "worse off" because of this. Some examples--the loan rate is actually far above public loans I could have accesssed at the time, and have a nice origination fee. So, for ten years the government will earn very good return on the loan, and get to keep the origination fee. Second, when they do forgive the loan, the amount forgiven is taxed at the marginal tax rate. given that this will be a windfall for most, it will likely be 25% or more back to the govt at forgiveness time. I have not modeled it out, but I bet the Gov does quite well with this system.

Here are the reasons why:

--more students will "bet" on staying in the public sector, and will not pay down the loans--no early pay offs. Interestingly, this is the riskiest part of student loans as they have no prepayment penalty. Good borrowers pay off quickly, bad borrowers do not--which leads to major adverse selection problems. Keeping good borrowers part of the pool (even if temporarially) has major advantages.

--many students will NOT stay int he public sector for 10 years, and will be doing face punches when they decide to pay off the debt by leaving to a private sector job in year 8. Again, great return on these great borrowers who could have refinanced the government loan at half the cost but did not.

--great employees may stay in the public sector for several more years to take advantage of the program. Having great employees is hugely valuable, and getting them at below market rates is even more valuable. These individuals will likely provide more value than they gained by waiting for the loan to get to forgiveness. This is the major reason why the gov is willing to have this program.

So, I would say that everyone who can should take advantage of this program. Don't cry for the taxpayers or the government at large--they are surely the beneficiaries of this program.

Suit

  • Bristles
  • ***
  • Posts: 275
Re: Student Loan Forgiveness
« Reply #18 on: July 13, 2014, 07:36:59 PM »
Second, when they do forgive the loan, the amount forgiven is taxed at the marginal tax rate. given that this will be a windfall for most, it will likely be 25% or more back to the govt at forgiveness time.

I think any amount forgiven under PILF is not taxable income whereas any amount forgiven under any other type is taxable. 

defenestrate

  • 5 O'Clock Shadow
  • *
  • Posts: 45
Re: Student Loan Forgiveness
« Reply #19 on: July 30, 2014, 05:39:25 PM »
Second, when they do forgive the loan, the amount forgiven is taxed at the marginal tax rate. given that this will be a windfall for most, it will likely be 25% or more back to the govt at forgiveness time.

I think any amount forgiven under PILF is not taxable income whereas any amount forgiven under any other type is taxable.

Awesome! That is some extra cash I can hold onto in about 7 years, and just made the math VERY compelling.

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 8956
  • Location: Fayetteville, NC
Re: Student Loan Forgiveness
« Reply #20 on: July 30, 2014, 05:54:40 PM »
Most people's total student debt is less than the median price of a new car.     

For most people it's just whining.

DarinC

  • Bristles
  • ***
  • Posts: 308
Re: Student Loan Forgiveness
« Reply #21 on: August 03, 2014, 12:55:30 AM »
Forgiveness is really a misnomer. It's really a lump sum payment to the IRS that's a percentage of your remaining debt at the time your loan is forgiven because your remaining balance is counting as taxable income, on top of the minimum payments you've had to make for the past one or two decades. My wife has a lot of student loan debt, but even on the IBR, because of the lump sum payment at the end and consistent payments over time, only ~30% of her original debt ends up being forgiven.

Northerly

  • 5 O'Clock Shadow
  • *
  • Posts: 86
Re: Student Loan Forgiveness
« Reply #22 on: August 04, 2014, 03:32:17 PM »
I can't condemn someone who is behaving rationally in response to an offer. It's not their fault that student loan forgiveness programs exist. As long as someone is honest and plays by the rules, why should we expect them to cut their own throats on principle?

I have an extremely low tax rate despite having a high overall income, thanks to
-employment by a state agency exempt from social security taxation
-enjoying depreciation on real estate investments
-recent adoption tax credit
-participation in energy-efficiency rebate programs (not income-based) in my state ($12,500 in my pocket in the last two years)
-receipt of Alaska Permanent Fund dividends for my family

None of these things are received because of my own merit, and I could choose to decline participation in all except the first. But that would make me crazy. Play by the rules, don't be fraudulent, don't be a dick. Otherwise, enjoy the benefits of living in a land of abundance instead of scarcity.