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Gov't should allow loan repayment with pre-tax dollars

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  • Gov't should allow loan repayment with pre-tax dollars

    This is obviously an informal discussion starter, but with all the money the government is "losing" to the loan refinanciers out there, it seems that they could recoup their losses by allowing borrowers (doctors, lawyers, any educational loan) to pay back loans with pre-tax dollars.  This effectively reduces the cost of a loan by whatever your tax bracket is, and the government is getting all the raw money back directly.

    Just sitting here thinking about things.  Is this not a brilliant solution that would make everyone happy?  I didn't bother crunching the numbers, but seems like a smart move that would make both sides happy....  except the SoFi-style companies.

  • #2
    I don't know what you mean.  How is the government "losing money" to loan refinancing?

    Comment


    • #3

      The interest that the government would be collecting over the life of these loans is now being collected by private companies is the loss I was referring to. 


       


      I don't know, perhaps it's just me sitting here on a Friday night before going to work overnight, day dreaming about ways that would we could use more pre-tax dollars, lower our tax brackets, and justifying it in a way that would prompt the government to consider it.  

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      • #4

        I dont think loan loss or anything like that matters really. Education is long term beneficial to the government in a myriad of ways. I've already more than paid for my loans in taxes for example.


        I floated this idea years ago, its brilliant. Incentivizes loan pay down, is self limiting, which is followed by spending in the greater economy. Win-win.

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        • #5

          We need guys/gals like you to run for office and make ideas like this a reality

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          • #6
            Brilliant idea. Of course Dems would decry it as a “giveaway to the rich” since it would preferentially help high earners in high tax brackets.

            Of course they don’t fully appreciate that docs give up a decade of earnings and retirement savings while training, for the “gift” of massive debt, being taxed up to top marginal 50% fed/state/local, and being labeled the ungrateful top 1% rich, while their net worth is still well below zero.

            I had always favored being able to deduct student debt from taxable earning, but this idea is better as it encourages rapid loan payoff!

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            • #7




              Brilliant idea. Of course Dems would decry it as a “giveaway to the rich” since it would preferentially help high earners in high tax brackets.

              Of course they don’t fully appreciate that docs give up a decade of earnings and retirement savings while training, for the “gift” of massive debt, being taxed up to top marginal 50% fed/state/local, and being labeled the ungrateful top 1% rich, while their net worth is still well below zero.

              I had always favored being able to deduct student debt from taxable earning, but this idea is better as it encourages rapid loan payoff!
              Click to expand...


              Its crazy win win.

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              • #8
                I have the opposite solution. The government should get out of the student loan business entirely. Don’t make the loans. Don’t collect the interest. Don’t give tax deductions for the interest.

                I believe the price of higher education would rapidly autocorrect.

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                • #9




                  I have the opposite solution. The government should get out of the student loan business entirely. Don’t make the loans. Don’t collect the interest. Don’t give tax deductions for the interest.

                  I believe the price of higher education would rapidly autocorrect.
                  Click to expand...


                  Absolutely correct.  Or do both.  Get government out of the student loan business AND allow pre-tax payment of private student loan debt.  Now we're talking.  What an incentive to lower student debt and blunt tuition inflation.

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                  • #10
                    Am I missing something? Doesn’t the government then lose the tax revenue on those loan dollars? And at your marginal rate!

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                    • #11




                      Brilliant idea. Of course Dems would decry it as a “giveaway to the rich” since it would preferentially help high earners in high tax brackets.

                      Of course they don’t fully appreciate that docs give up a decade of earnings and retirement savings while training, for the “gift” of massive debt, being taxed up to top marginal 50% fed/state/local, and being labeled the ungrateful top 1% rich, while their net worth is still well below zero.

                      I had always favored being able to deduct student debt from taxable earning, but this idea is better as it encourages rapid loan payoff!
                      Click to expand...


                      It would be a great way to make everyone mad that's for sure.

                      But yeah financially savvy docs would be out of debt in no time flat. ************************ we'd all be paying down to our Roth contribution phase out start just so we didn't have to screw around with doing the backdoor on TurboTax

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                      • #12
                        I don't see how the government would make money by letting pre-tax payments.  As it is, when loans are refinanced, the government gets $0 of additional interest.  If pre-tax contributions were allowed, the government would get that interest but then lose soooooo much more in taxes.  If they really wanted to keep the loans and collect the interest, they'd just make the interest rates competitive.

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                        • #13
                          The government is in the business of subsidizing preferred behavior and punishing non-preferred behavior in the tax code.

                          I would think that encouraging rapid student loan payoff and encouraging our best and brightest (not just those with wealthy parents) to obtain advanced degrees would be something worth subsidizing even if it isn’t revenue neutral. (Trying to be apolitical here, ?failing already)

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                          • #14




                            I don’t see how the government would make money by letting pre-tax payments.  As it is, when loans are refinanced, the government gets $0 of additional interest.  If pre-tax contributions were allowed, the government would get that interest but then lose soooooo much more in taxes.  If they really wanted to keep the loans and collect the interest, they’d just make the interest rates competitive.
                            Click to expand...


                            The government makes its money in tax revenues. This would be very self limiting. People would turn around and spend, which is good for the economy.

                            Agree the over willingness to fund education in the way theyve done it has increased tuition, but there is probably a simple/elegant solution to that. Its smart for government to incentivize education as it has very wide ranging positive results.

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                            • #15



                               

                              Agree the over willingness to fund education in the way theyve done it has increased tuition, but there is probably a simple/elegant solution to that.
                              Click to expand...


                              The solution is fairly simple--the public universities have to decide to freeze tuition costs.  Former Indiana Governor Mitch Daniels, now president of Purdue University, has done just that for the past 5-6 years.  It's quite incredible actually

                              https://www.usnews.com/news/best-states/indiana/articles/2017-03-20/purdue-university-freeze-tuition-for-6th-consecutive-year

                              They're still an upper tier STEM university producing great graduates. Their graduates may end up being more competitive in the marketplace due to lower debt levels.

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