US to Forgive $108 Billion of Student Loans in Coming Years

[Craigy]

Good article in WSJ today:

http://archive.is/Hoj9R

http://www.wsj.com/articles/u-s-to-forgive-at-least-108-billion-in-student-debt-in-coming-years-1480501802

The report, to be released on Wednesday by the Government Accountability Office, shows the Obama administration’s main strategy for helping student-loan borrowers is proving far more costly than previously thought. The report also presents a scathing review of the Education Department’s accounting methods, which have understated the costs of its various debt-relief plans by tens of billions of dollars.

Education Department data show that most borrowers with high debt balances have attended graduate school. Roughly 8 million borrowers are currently in default on their loans, most owe under $10,000, government data shows. But Wednesday’s report suggests the average balance of borrowers in income-driven repayment plans is nearly $67,000.

President Obama has called for capping how much debt an individual can have forgiven, but Congress hasn’t acted on the proposal.

The GAO said it could take 40 years to know full costs of the programs.

 

Go figure, the good 'ol gubmint didn't know how much this would cost before they implemented it ?

Seems like the writing is on the wall for future caps.  Hopefully nobody will have the rug pulled out from underneath, but the potential for future medstudents to IBR their loans away might become substantially diminished.   ?

 

 

[DAK]

Of particular interest is the following:

While Republicans such as Sen. Enzi have criticized the debt-forgiveness plans, President-elect Donald Trump said during his campaign that he supported the idea of helping student-loan borrowers. He has proposed setting payments at 12.5% of income and forgiving balances after 15 years.

I also would not be surprised if the republicans also impose an income cap in the $80-100k range, above which 100% of income would be required to be used for repayment.  I don't think this program ever really intended to subsidize folks who work for private sector market rate, but just happen to work for a non-profit hospital.

[canadianoutlaw]

Thanks for posting @Craigy. No doubt this program will change significantly. If I were a betting man, I'd think a cap on forgiveness and extending the minimum years until forgiveness

[childay]

It will be interesting to see what happens.  Hopefully you folks going for forgiveness don't get hosed

[The White Coat Investor]

Fox picked it up too:

http://www.foxnews.com/politics/2016/11/30/us-to-forgive-at-least-108b-in-student-debt-in-coming-years.html

The report, to be released on Wednesday by the Government Accountability Office, shows the Obama administration’s main strategy for helping student-loan borrowers is proving far more costly than previously thought. The report also presents a scathing review of the Education Department’s accounting methods, which have understated the costs of its various debt-relief plans by tens of billions of dollars.

Senate Budget Committee Chairman Mike Enzi (R., Wyo.) ordered the report last year amid a sharp increase in enrollment in income-driven repayment plans, which the Obama administration has heavily promoted to help borrowers avoid default. The most generous version caps a borrower’s monthly payment at 10 percent of discretionary income, which is defined as any earnings above 150 percent of the poverty level.

That formula typically reduces monthly payments of borrowers by hundreds of dollars. Any remaining balance is then forgiven after 10 or 20 years, depending on whether the borrower works in the public or private sector.

Nothing about doctors though, who stand to have way more forgiven than anyone else.

[cathy2934]

To be honest I hope they grandfather people in. As likely people picked jobs even though they paid less because this option was available. Personally I signed a 7 year contract with the military (which I cannot get out of even if the government gets out of this), received no doctor bonus, had no loans repaid, and did not receive hpsp. But had not had concern because this program existed. While all my peers did HPSP and had their loans paid for.

[Zaphod]

While I get the spirit of the report and I have zero idea why they didnt see coming the professional student stampede (actually think they probably did)...the idea that the government wont be making money on student loans is ridiculous. Even these professional ones where a lot is forgiven. Many will have more than paid back their principle over 20 yrs and wait for it...the government makes most of its money from student loans in the form of higher taxes by educated working citizens. Absolutely lazy reporting. They would make money even if they did it all for free (in the very long term).

[Hawkeye225]

I guess I'm a little old school and don't believe there should be loan forgiveness.  They made the decisions and should live it.  Sure, maybe extend the time frame for repayment but I would not let them off the hook.  It teaches a lesson that shouldn't be taught.

[canadianoutlaw]

I suspect we will see more of this negative student loan coverage come out from this administration/congress/senate

http://www.wsj.com/articles/congress-will-likely-consider-reining-in-student-loan-programs-house-republican-says-1481833008

[resident_1]

Here is link to the actual Brooking Institution report. https://www.brookings.edu/wp-content/uploads/2016/09/es_20160922_delisle_evidence_speaks1.pdf

PSLF is a wonderful plan, I have 6.5yrs to go (as residency counts).  Many recent residency grads are taking advantage of this program. For me it affected job selection (private hospitals/private practice vs public/non-profit institution).  If you aren't doing private practice, PSLF is the way to go. Particularly if you are in a field where salary in private vs public employment is not much of a difference.  There are many hospitals/institutions that qualify as non-profits (not just major academic centers, prisons, VA, etc).

Any one on here who will be eligible for the first (2017) PSLF forgiveness year?

 

[BrownsTown]

The articles presented in this thread are something I have been dreading but anticipating since I first read and learned about PSLF. Something about the government just saying "Ok, don't worry about the 200k remaining on your loan balance, and don't worry about paying the taxes on it either" just sounds too good to be true. Maybe I am a pessimist, but I am also very hesitant to believe they will grandfather everyone in who is part way through the program when the parameters are inevitably changed to cut out high earners and/or cap forgiveness amounts, which I'm guessing will disqualify the majority of people reading this forum. I feel the rhetoric against this program will only drastically increase in 2017 when the first people (including many high earners) complete 120 payments.

 

I am roughly 55 IBR payments in and in my first year as an attending at an academic institution in a relatively high paying specialty. I have >300k in loans. Rather than wait 5.5 more years to be told I do not qualify for whatever reason or that only $57,500 can be forgiven, I am seriously considering refinancing at the best rate I can find just to take the guesswork out of it.

 

Am I the only one considering this? The more I learn and read about this the more skeptical I become.

 

[canadianoutlaw]

Interesting. Theres no perfect answer here; you're exactly right, its "guesswork". >300k really makes you think hard about this decision. We are in a very similar situation and go back and forth on refinancing/ridding versus continue toward forgiveness. If you like your 501c job and you think you'll be there for 6 years, an alternative approach is to continue to pursue forgiveness but "live like a resident" until you have enough to pay off the loans, if need be. The WCI suggests such an approach here:

https://www.whitecoatinvestor.com/what-should-i-do-with-my-student-loans/

“Step 4 is to live like a resident until the loans are gone. Even if you expect PSLF, live like a resident anyway until you save up enough money on the side that you can pay off the debt in case PSLF goes away (or is capped) and you aren’t grandfathered in.”

Consider investing aggressively in taxable "side" account.

2017/2018 should be very interesting (and telling) for this conundrum.

Importantly, the fact that you are 55 IBR payments in shouldn't necessarily dictate your commitment to the PSLF path; in the decision making process this can be treated as a "sunk cost" of sorts

 

[BrownsTown]

Thank you very much for the input.

 

The above detailed plan to continue toward PSLF while saving as if paying the loans off anyway as a backup is actually exactly what our plan has been. The only thing that gives me pause is potentially waiting 1-2 years for the program to declare itself at which point the fed will have raised rates to the point where refinancing will essentially be pointless (a "missed window" of sorts.) I suppose an argument could be made for this being a risk worth taking, depending how attractive of a rate I would be offered to refinance. Where the "trial of PSLF" really breaks down IMO (for at least our specific situation) is if they decide to uncap payments (get rid of the option to revert to a standard 10yr payment plan if IBR calculation exceeds a standard plan,) and/or limit forgiveness to $57.5k. This would be a big hit for those in high earning specialties.

My wife (advanced degree, non-MD) actually also has just over 100k in loans as well, and works in a non-qualifying job. Our plan was to continue IBR on my loans but aggressively pay hers, hopefully paying them off in roughly 18 months, then saving the excess money as noted above for the possibility of the gov't not following through w PSLF.

The IBR payments, in my mind, are not "sunk costs" regardless, as no matter which route we choose to take (refinance and pay off aggressively vs PSLF), they would still get us closer to our goal of loans gone.

[canadianoutlaw]

Agreed. Yes, the only path of certainty is to refinance and pay off aggressively. We are ~2 years behind you so hopefully get the luxury of seeing how the PSLF pioneers fare.

[bonehead]

My thoughts:

Emotionally, it seems perilous to stick with PSLF, but the truth is that policy changes like this don't happen overnight.

IF PSLF were going to be changed, IF it gets through congress in spite of what will likely be fierce resistance from many groups including lawyer borrowers, and IF there's a cap, and IF there is no grandfathering of current borrowers qualifying for PSLF, it will take years to actually be implemented.

In such a scenario, there will be time to adjust the plan accordingly including to refinance.

And even then, even if there was a cap of say 60k, it would still count for paying ~100k towards your loans if you used your pre-tax income if you are in a physician's income range.  This would likely cover a reasonable amount of interest, particularly if enrolled in REPAYE, which caps the interest accrued significantly for the lifespan of the loan.

If you're going to make money, it always comes down to making a bet.  Even if you are financially conservative with no student loans, you may have invested much of your income in index funds, which is a bet that the stock market will continue to perform as it has done previously.  The stock market can crash and theoretically never recover before the money is needed.  It probably won't, but it's not impossible.

Yes, you can refinance and pay them off the old fashioned way.  But if you have significant loan to income ratio, I think it's a bet worth taking until things have changed.