Should PSLF be disbanded

[shantster]

ENT Doc wrote:

Our politicians don’t think about consequences beyond the one-sided book keeping that supports their cause.  More often than not, government involvement screws up a market even more by creating perverse incentives.  Student loans are a perfect example.  It’s also worth noting that the metrics that underpin the US News & World Report rankings create perverse incentives for wasteful spending and cost increases too.  I’d like to see a system where the school bears the risk, gives out the loan and financial aid accordingly, and charges a percentage of the graduate’s income yearly (until a specified period of time) based on the loan amount.  This forces them to focus on the value of their degrees and price accordingly.  God forbid that a market might function so efficiently.  What we have now is what happens when something is deemed a “right”.  Plan accordingly.

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That's already started at a few universities with Purdue being the most notable. Known as Income Share Agreement (ISA).

http://time.com/money/4568213/income-share-agreements-college/

https://www.purdue.edu/dfa/types-of-aid/income-share-agreement/index.html

[Zaphod]

The White Coat Investor wrote:

nachos31 wrote:

hatton1 went and did it. Remember when WCI wrote this post whitecoatinvestor.com/the-moral-hazard-of-loan-forgiveness-programs/ calling PSLF a moral hazard and how everyone became outraged in the comments thinking he was judging people? Good times.

I agree it’s a silly program and I’d rather just take out loans and pay them back. But it’d be sillier of me not to take advantage of it.

Several have noted how the government participating in the student loan market led to tuition skyrocketing. Anyone know when this happened? I was under the impression tuition has been skyrocketing pretty much forever. I remember one of my CT surgery attendings in med school telling me his undergrad at Univ of Texas cost $30/semester in the 1940s.

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Yea that post blew up because a number of commenters didn’t actually understand that when I stated something was a moral hazard they thought I was calling them immoral.

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Just goes to show the lack of financial savvy among doctors.

[The White Coat Investor]

nachos31 wrote:

hatton1 went and did it. Remember when WCI wrote this post whitecoatinvestor.com/the-moral-hazard-of-loan-forgiveness-programs/ calling PSLF a moral hazard and how everyone became outraged in the comments thinking he was judging people? Good times.

I agree it’s a silly program and I’d rather just take out loans and pay them back. But it’d be sillier of me not to take advantage of it.

Several have noted how the government participating in the student loan market led to tuition skyrocketing. Anyone know when this happened? I was under the impression tuition has been skyrocketing pretty much forever. I remember one of my CT surgery attendings in med school telling me his undergrad at Univ of Texas cost $30/semester in the 1940s.

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Yea that post blew up because a number of commenters didn't actually understand that when I stated something was a moral hazard they thought I was calling them immoral.

[initforthelonghaul]

When I think of professionals who truly need PSLF, I think of those fields where a Master's degree is required but the median income for the field is $40-60k, such as social workers, teachers (at least in my state, they are now required to get a Master's by their xth year of employment), many lab researchers, etc.

Of course, we need to address why my public state universities feels it's appropriate to charge $30-50k for a Master's in social work where the person obtaining this degree will only ever make $60k/year, but that's a separate issue. I like the above suggestion to shift tuition risk to the universities.

[Zaphod]

Craigy wrote:

Zaphod wrote:

Psyched wrote:

YES! Make it all tax deductible and/or give me the same d*amn interest rates that people are getting for mortgages….this 6-10%+ interest rate on student loans is robbery.

 

 

I personally paid off my 220k in loans working just 2 years total in what is considered a “very low paying” specialty by most. Hard for me to feel sorry for the many, many people making 300k+ a year and buying McMansions, fancy clothes, and nice cars either in or right out of residency and depending on PSLF…of course everyone’s situation is different but I have found that most of my peers are spending wayyyyy more lavishly than me and are still in debt or had a lot of help from their families…

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There is that little issue of non security in student loans, its not backed by an asset that can be taken back if you default. Education cant really be removed from you if you didnt pay. That warrants a higher rate in reality. However, it becomes whether or not it is a social or national good or investment in the future, which I think it is and should be viewed as such.

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Maahhhh… it’s backed by your soul and all of your future earnings or assets.  They are non-dischargeable and will haunt you for your whole life.  They follow you to every job you take, every account you open, any large asset you purchase.  This is the complete opposite of a personal loan or credit card debt which can vanish after bankruptcy or even just the passage of time.  Further, they are guaranteed to an extent by the feds.  They’re very low risk, and the only reason they get away with charging 6.8%+ is because the feds set the rate.

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I would have to agree its definitely not as unsecure as a cc or personal loan, and there is vastly little recourse to do anything about it. So, that would warrant a lower than market rate, which it still is, if you try to get private loans theyre even higher. Maybe thats due to anchoring from the fed, so why not have a premium? Agree it could be lower, and it should be. Even if it were nearly zero percent the overall gain for the government is immense in having an educated and productive workforce.

[Craigy]

Zaphod wrote:

Psyched wrote:

YES! Make it all tax deductible and/or give me the same d*amn interest rates that people are getting for mortgages….this 6-10%+ interest rate on student loans is robbery.

 

 

I personally paid off my 220k in loans working just 2 years total in what is considered a “very low paying” specialty by most. Hard for me to feel sorry for the many, many people making 300k+ a year and buying McMansions, fancy clothes, and nice cars either in or right out of residency and depending on PSLF…of course everyone’s situation is different but I have found that most of my peers are spending wayyyyy more lavishly than me and are still in debt or had a lot of help from their families…

Click to expand…

There is that little issue of non security in student loans, its not backed by an asset that can be taken back if you default. Education cant really be removed from you if you didnt pay. That warrants a higher rate in reality. However, it becomes whether or not it is a social or national good or investment in the future, which I think it is and should be viewed as such.

Click to expand...

Maahhhh... it's backed by your soul and all of your future earnings or assets.  They are non-dischargeable and will haunt you for your whole life.  They follow you to every job you take, every account you open, any large asset you purchase.  This is the complete opposite of a personal loan or credit card debt which can vanish after bankruptcy or even just the passage of time.  Further, they are guaranteed to an extent by the feds.  They're very low risk, and the only reason they get away with charging 6.8%+ is because the feds set the rate.

[Craigy]

blowhard wrote:

Craigy wrote:

retinadoc wrote:

My feeling is that it is effectively a transfer payment from the poor to the wealthy. That does not strike me as fair.

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It’s a transfer payment but I don’t see how it’s only for the wealthy.

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I think it would more accurate to say it disproportionately helps the wealthy, if you make the assumption that those with professional degrees have larger loans and larger incomes.

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Not to get too technical, but if you have larger loans, that doesn't usually mean you're more wealthy

And if they have a larger income as a result of their expensive education, could that not be applied by a poorer person just the same to lift him or her out of the poverty cycle?  Granted, I don't doubt that more wealthy children go onto more expensive schools, taking debt or not, but there are also tons of poor and middle class taking enormous student loans.

And then the whole idea that it's a transfer payment "from the poor to the wealthy" is silly... even if you assume it's a transfer payment to the wealthy, how does it come from the poor?  How much tax do they pay again?

[Hatton]

I forgot that post.  I have heard the moral hazard argument made in general about the government bailing out Mexico in the 90s peso crisis.  The fear was that too much money would flood into emerging markets because we would bail out losing countries.  Another moral hazard in reverse was that the government chose not to bail out Lehman brothers in 2008.  The hazard in the student loans people take on such enormous debt because they expect forgiveness.  What happens if the government clamps down on who is eligible?  If I had large loans I would try for it too.  The moral hazard argument is for the economy at large not an individual.  I would be worried about it as the public finds out the details of who is getting it.

[nachos31]

hatton1 went and did it. Remember when WCI wrote this post whitecoatinvestor.com/the-moral-hazard-of-loan-forgiveness-programs/ calling PSLF a moral hazard and how everyone became outraged in the comments thinking he was judging people? Good times.

I agree it's a silly program and I'd rather just take out loans and pay them back. But it'd be sillier of me not to take advantage of it.

Several have noted how the government participating in the student loan market led to tuition skyrocketing. Anyone know when this happened? I was under the impression tuition has been skyrocketing pretty much forever. I remember one of my CT surgery attendings in med school telling me his undergrad at Univ of Texas cost $30/semester in the 1940s.

[Zaphod]

Psyched wrote:

YES! Make it all tax deductible and/or give me the same d*amn interest rates that people are getting for mortgages….this 6-10%+ interest rate on student loans is robbery.

 

 

I personally paid off my 220k in loans working just 2 years total in what is considered a “very low paying” specialty by most. Hard for me to feel sorry for the many, many people making 300k+ a year and buying McMansions, fancy clothes, and nice cars either in or right out of residency and depending on PSLF…of course everyone’s situation is different but I have found that most of my peers are spending wayyyyy more lavishly than me and are still in debt or had a lot of help from their families…

Click to expand...

There is that little issue of non security in student loans, its not backed by an asset that can be taken back if you default. Education cant really be removed from you if you didnt pay. That warrants a higher rate in reality. However, it becomes whether or not it is a social or national good or investment in the future, which I think it is and should be viewed as such.

[East coast]

Psyched wrote:

YES! Make it all tax deductible and/or give me the same d*amn interest rates that people are getting for mortgages….this 6-10%+ interest rate on student loans is robbery.

Click to expand...

The rate that the government gives is subsidized relative to what the market rate would be already - if they weren't why wouldn't everyone just go to a bank and get a loan? some do, like me, but that rate was higher than federal loans at the time (I wasn't eligible for federal loans and even had to have a cosigner for that rate) Definitely can't compare rates on student loans to a secured loan rate-wise.

As for PSLF, I feel a cap on the amount forgiven would be a reasonable addition to the law. Still incentivize what my understanding of the law was intended to incentivize, but not allow for what's been called a 'doctor loophole' by a guest poster here.

[Psyched]

YES! Make it all tax deductible and/or give me the same d*amn interest rates that people are getting for mortgages....this 6-10%+ interest rate on student loans is robbery.

 

 

I personally paid off my 220k in loans working just 2 years total in what is considered a "very low paying" specialty by most. Hard for me to feel sorry for the many, many people making 300k+ a year and buying McMansions, fancy clothes, and nice cars either in or right out of residency and depending on PSLF...of course everyone's situation is different but I have found that most of my peers are spending wayyyyy more lavishly than me and are still in debt or had a lot of help from their families...

[Zaphod]

I think PSLF is not a very good tool at all, actually its terrible and a very poor way to address the problem, which is supposed underfunding of public universities, etc...which I am not sure about. However, the idea you're getting off somehow doesnt seem right either, dont you end up at least paying off what you owe over that time period? The IBR/Repaye stuff is worse than just paying it off, never considered it. I hear people are getting letters from the government right now saying their 503c or whatever isnt qualified, that would be terrible.

Aside from the public good physicians do, we also pay massive taxes and the government wins out several magnitudes more than any loan forgiveness could touch. Ive paid far more than my loans in taxes in my medical career, in addition to payments, interest, etc...Its a poor policy that benefits no one and serves to have downside such as a continuance of the factors (high costs, and willingness to borrow) that got us here. Its plain stupid. I dont find it regressive tax wise as we are basically paying for our own forgiveness, but yes it does help professionals more.

Its also broadly bad for the economy. Its turned us into financially savvy, frugal, and FIRE minded individuals in addition to suppressing household formation and overall consumption. Even if they outright forgave all loans it would probably be more of a net positive than what they are doing. I really dont think its very hard to fix, mathematically, legislatively, etc...there are some very simple and elegant solutions.

I've said before, but if you simply made all student loan payments tax deductible, it would end up being a huge win for all parties involved. It would prioritize payments, and payers would be free relatively sooner and start consuming. It wouldnt really cost much since as soon as its done the taxes just come right back with a vengeance. It would be a morale booster for all professionals, who make up the biggest pool of beneficiaries, and take the write off issue away from government, etc...Simple and elegant.

[ENT Doc]

Our politicians don't think about consequences beyond the one-sided book keeping that supports their cause.  More often than not, government involvement screws up a market even more by creating perverse incentives.  Student loans are a perfect example.  It's also worth noting that the metrics that underpin the US News & World Report rankings create perverse incentives for wasteful spending and cost increases too.  I'd like to see a system where the school bears the risk, gives out the loan and financial aid accordingly, and charges a percentage of the graduate's income yearly (until a specified period of time) based on the loan amount.  This forces them to focus on the value of their degrees and price accordingly.  God forbid that a market might function so efficiently.  What we have now is what happens when something is deemed a "right".  Plan accordingly.

[retinadoc]

You're right, I didn't state that well. But I think it's likely regressive, in that the recipients are better off than the tax base as a whole.