New Trump Executive Order —> Further Student Loan Deferrnent

[WorkingToFish]

i just wanted to include the following quotation from the executive order in order to hear what other people think it means:

“The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

This is ridiculous. Without an end date or a plan for permanent deferral, why would I choose to spend that deferred payroll tax money? Millions of people absolutely will, unfortunately; and they're going to be furious if that money gets recalled. This seems like a horrible plan to me.

[Tim]

0% interest makes sense. Deferred payments temporarily makes sense. Letting it count towards pslf does not.

I wish that was the only problem with the student loan program.

[billy]

This is ridiculous. Without an end date or a plan for permanent deferral, why would I choose to spend that deferred payroll tax money? Millions of people absolutely will, unfortunately; and they're going to be furious if that money gets recalled. This seems like a horrible plan to me.

The general public is ill informed. It can also be used politically to blame which ever party chooses to be the party poopers- i suspect nothing will happen until after november. Last night I was talking to 2 non md, non FIRE type friends- both were shocked to hear they will have to pay the taxes eventually.

[hightower]

It seems pretty clear to me that both the Dems and Trump/a growing number of Republicans realize that extending the CARES Act student loan provisions are in their best interest politically given it's an election year. I'm fairly confident such an extension will occur either by presidential EO or bipartisan agreement. Don't forget, CARES Act just codified Trumps EO that suspended all federal student loan interest and payments at the beginning of the pandemic.

Now on to my question: As a brand spanking new attending, I'm still confused why anyone would consider refinancing their federal student loans right now. I'm extremely hesitant to get rid of federal loans given the governments willingness to offer me $0 monthly payments and 0% interest. I'm not seeing the downside to throwing what I would pay each month into my high interest savings account and wait for the day my payments actually restart. This day is starting to look further and further out (possibly 12 months!).

This seems so clear-cut to me, but I feel like so much of what I read on WCI is "refinance on 9/30, rates will go up because of demand, etc etc." Federal loans seem to be a pretty safe bet for me right now. The last thing I want to do is commit myself to 5 or 6 figure monthly payments if another shutdown could threaten my current employment (associates were laid off during the first shutdown and quickly brought back). I'm always able to refi later when the pandemic is over and the CARES act provisions actually end.

Take it from someone who didn't prioritize paying down student loans the first 5 years of attending-hood that no matter what is happening in the world around you, paying off your student debt should be priority number 1! The longer you hold on the that debt, the more it wears on you and the harder it gets to want to send money to the loan company. Pretend you’re still a resident and send all your extra income to those loans, even if the government says you dont have to or the interest rate is zero. The only thing that should stop that is if you have no income. Then you can be thankful for a deferment and use your e-fund while searching for a new job.
And what “high interest savings accounts” are you referring to? 1.1%? You have to pay taxes on what little interest you earn and even without taxes you’re still not keeping up with inflation. Yet meanwhile you still have giant student loan debt hanging over your head that will not go away unless you pay it. So what advantages are there to watching cash sit around and do nothing for 12 months or more? Just pay your debts and move on.

[Minnesconsin]

Take it from someone who didn't prioritize paying down student loans the first 5 years of attending-hood that no matter what is happening in the world around you, paying off your student debt should be priority number 1! The longer you hold on the that debt, the more it wears on you and the harder it gets to want to send money to the loan company. Pretend you’re still a resident and send all your extra income to those loans, even if the government says you dont have to or the interest rate is zero. The only thing that should stop that is if you have no income. Then you can be thankful for a deferment and use your e-fund while searching for a new job.
And what “high interest savings accounts” are you referring to? 1.1%? You have to pay taxes on what little interest you earn and even without taxes you’re still not keeping up with inflation. Yet meanwhile you still have giant student loan debt hanging over your head that will not go away unless you pay it. So what advantages are there to watching cash sit around and do nothing for 12 months or more? Just pay your debts and move on.

Thank you for your reply. I'm definitely still planning to pay off in 3-5 years, regardless of the COVID deferment. The deferment just allows me to control my money and make 1% off of it a bit longer. I am newly employed, so I am possibly the first person to be furloughed if we run short of ppe/get shutdown etc, so I am happy to have this extra emergency fund while COVID is chugging along. I plan to pay all of my funds that are held in my "Loan bucket" during the deferment to my loan servicer a week or two before interest starts accruing again.

[jhwkr542]

Anybody hear any details over what this deferment means for PSLF? Just wait and see?

[Tim]

Thank you for your reply. I'm definitely still planning to pay off in 3-5 years, regardless of the COVID deferment. The deferment just allows me to control my money and make 1% off of it a bit longer. I am newly employed, so I am possibly the first person to be furloughed if we run short of ppe/get shutdown etc, so I am happy to have this extra emergency fund while COVID is chugging along. I plan to pay all of my funds that are held in my "Loan bucket" during the deferment to my loan servicer a week or two before interest starts accruing again.

The most aggressive plan:
•Figure out your repayment plan
•Key saving the loan repayment plan amount
•When the dust settles, Refi the lowest amount.
Don’t use those funds for EFund. Build that separately. By the way, if your furloughed or laid off, you are stuck with the higher interest. Was it worth it? Do you have certainty that refi’s will be available and at what rates? Holding off has risks too.

[East coast]

Anybody hear any details over what this deferment means for PSLF? Just wait and see?

PSLF was not mentioned at all in the executive order. Your guess is as good as mine if anything will happen specifically with PSLF, but your direct answer appears to be no.

If you want, go and read the actual executive order, but it's a piece of poo with regards to clarity!!

A few examples - it says that "...it is therefore appropriate to extend this policy..." but it doesn't say what policy - his original EO or the actual CARES Act legislation? The original EO to my knowledge had nothing in it about PSLF - the $0 payments that count towards PSLF came later in the CARES Act. If its the actual legislation, do we really think the president has power to just say "i override any end date stated in legislation and continue it all on my own?" No one knows what that actually means.

It also appears to refer to only applying the EO to borrowers who are eligible for "economic hardship" which is a legally defined term to my knowledge (meaning 150% of poverty line for AGI). But again, who knows. So it's possible that really no one here is affected by the order - wait and see it is!

[endo4jc]

Take it from someone who didn't prioritize paying down student loans the first 5 years of attending-hood that no matter what is happening in the world around you, paying off your student debt should be priority number 1! The longer you hold on the that debt, the more it wears on you and the harder it gets to want to send money to the loan company. Pretend you’re still a resident and send all your extra income to those loans, even if the government says you dont have to or the interest rate is zero. The only thing that should stop that is if you have no income. Then you can be thankful for a deferment and use your e-fund while searching for a new job.
And what “high interest savings accounts” are you referring to? 1.1%? You have to pay taxes on what little interest you earn and even without taxes you’re still not keeping up with inflation. Yet meanwhile you still have giant student loan debt hanging over your head that will not go away unless you pay it. So what advantages are there to watching cash sit around and do nothing for 12 months or more? Just pay your debts and move on.

I am finishing up my first year as an attending, and my original plan was to crush my student loans within 2 years. However, I got fortunate and refinanced a second time (originally as a resident) just before the Fed dropped interest rates. My student loans sits at 0.41%. It makes no sense to pay anything above the minimum monthly payment. It’s not like I am spending the excess. By the end of 2020, I’ll have about 35% gross savings (tax advantaged and taxable) and at least 5% added to the cash coffers. It’s truly about behavior. If one is going to spend the excess, then paying off student loans no matter the interest makes sense.

[GastroMastro]

I am finishing up my first year as an attending, and my original plan was to crush my student loans within 2 years. However, I got fortunate and refinanced a second time (originally as a resident) just before the Fed dropped interest rates. My student loans sits at 0.41%. It makes no sense to pay anything above the minimum monthly payment. It’s not like I am spending the excess. By the end of 2020, I’ll have about 35% gross savings (tax advantaged and taxable) and at least 5% added to the cash coffers. It’s truly about behavior. If one is going to spend the excess, then paying off student loans no matter the interest makes sense.

yeah, but Ally just dropped their rate to 0.8% on interest, which after taxes, might be 0.4-0.5%, so it would actually be a wash in terms of whether to keep your money in a HYSA versus paying off the loans

[endo4jc]

yeah, but Ally just dropped their rate to 0.8% on interest, which after taxes, might be 0.4-0.5%, so it would actually be a wash in terms of whether to keep your money in a HYSA versus paying off the loans

I agree it is probably a wash if the choices are pay off student loans at 0.41% or after tax in interest for a high yield savings account. Investing in equities is, hopefully, a more advantageous play.

[Tim]

I agree it is probably a wash if the choices are pay off student loans at 0.41% or after tax in interest for a high yield savings account. Investing in equities is, hopefully, a more advantageous play.

HYSA has lost it’s luster. The original intent of crushing the loans was not about onerous interest rates and returns.
The rationalization was about leverage. What has changed in the leverage picture? Have you adjusted your expected investment returns?
My point is your plan was an debt/asset decision originally and rate of return wasn’t a factor. The concept was funds needed the next 5 years shouldn’t be in the market. Just how long do you plan to carry it?

[endo4jc]

HYSA has lost it’s luster. The original intent of crushing the loans was not about onerous interest rates and returns.
The rationalization was about leverage. What has changed in the leverage picture? Have you adjusted your expected investment returns?
My point is your plan was an debt/asset decision originally and rate of return wasn’t a factor. The concept was funds needed the next 5 years shouldn’t be in the market. Just how long do you plan to carry it?

I refinanced into a variable rate in February to 1.89% for a 5 year term. Had planned to pay them off in two years. However when the rate dropped to 0.41% over the next few months I adjusted my gross savings rate goal from 20% to 40% so I am putting the difference in my taxable account as all tax advantaged has been filled for the year. We also have a 20% down payment saved as we had offered on a home using a conventional loan but were declined finance as I don’t have two year worth of self-employed tax returns. We will likely use a physician’s loan next year for a hike and deploy the down payment elsewhere, either market or student loans.

[childay]

I refinanced into a variable rate in February to 1.89% for a 5 year term. Had planned to pay them off in two years. However when the rate dropped to 0.41% over the next few months I adjusted my gross savings rate goal from 20% to 40% so I am putting the difference in my taxable account as all tax advantaged has been filled for the year. We also have a 20% down payment saved as we had offered on a home using a conventional loan but were declined finance as I don’t have two year worth of self-employed tax returns. We will likely use a physician’s loan next year for a hike and deploy the down payment elsewhere, either market or student loans.

Had no idea refinance rates were so low wow. Don't pay it off I agree assuming you're putting that $ into taxable. The home down-payment decision will of course depend on mortgage rates etc

[Ekanive23]

0% interest makes sense. Deferred payments temporarily makes sense. Letting it count towards pslf does not.

the companies would lose their mind trying to keep track of who paid if you still had to pay for plsf