"interesting" idea if you feel you can't save enough for college

[Tim]

“This seems like taking full advantage of tax code in a legal way.”

No offense, tax code has zero to do with FAFSA.
Assets and income of the student and parent/guardian.
Guardianship is allowed simply because relatively few cases occur. Intentionally creating a situation is deceptive.

[DCdoc]

Why should the cost of college for an 18 year old who is a legal adult, old enough to be married, have their own children, or be drafted into the military, have the cost of their college dependent on the income of parents? I was 26 in med school, hadn’t lived with my parents in 8 years, yet my cost still depended on their earnings. They weren’t supporting me. They didn’t pay for my med school. I took out loans. Yet other students received scholarships because their parents made less money. Their parents didn’t pay for med school.  Mine didn’t either.  Why did it cost me more than them?  It’s rare in life that the cost of an identical product varies based on income, especially if the income isn’t of the individual but rather direct relatives of the person purchasing the product.

[DCdoc]

Let’s not pretend PSLF is ethically clear-cut. These people signed promissory notes to repay loans they took out, often with the full financial resources to repay the debt easily, but choose to take advantage of a program that was never intended to benefit them.  This is the entire notion regarding a PSLF “side fund.” If PSLF was designed for people who couldn’t repay their loans without huge hardship, how many physicians meet this definition?  1%?  The other 99% could easily repay their loans (medical school loans have historically had a huge rate of return - a lifetime of high pay) but choose not to.  We’ve had parents on this very forum who had initially planned to pay for their kids entire med school tuition decide not to because there’s no point paying a huge sum of money that could otherwise be forgiven. I personally know many people who took way more loans than necessary to live a far more extravagant life in med school than they should, with the knowledge that they would repay the same amount regardless of how much they took out in loans. Some invested the excess. I know a guy who bought a Porsche. No matter how you feel about transferring guardianship to reduce college costs, hopefully we can all agree the entire educational payment system is a mess, increasing yearly in cost far exceeding inflation and with otherwise identical students paying a huge difference in price based on external factors that are unrelated to the product (education) they purchase.

[Lordosis]

Well put DCdoc. I am afraid all the people "depending" on PSLF will shout you down but I think you make a lot of sense.
Most Docs can afford their loans but choose luxury instead.

[AR]

People have been lying about income to get need based financial aid for as long as it's been around.  There is nothing extra unethical about this.  It the same unethical stuff with better execution.

It seems like it would be pretty easy for colleges to figure this out or easily adjust their policies to thwart it.  My guess is that this technique will not exist for much longer.

[Tim]

“We’ll put DCdoc.”
I second the motion.
Second guessing myself though. Undergraduate seems to be a completely different set of circumstances.
For postgraduate education I lean towards the individual financing . Competition for scholarships, loans or savings. Postgraduate work is focused on higher pay and has specific paybacks and costs ONLY for the individual. Earn it. No forgiveness, it’s misguided.

[Lordosis]

AR wrote:

It seems like it would be pretty easy for colleges to figure this out or easily adjust their policies to thwart it.  My guess is that this technique will not exist for much longer.

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I would hope so but what incentive does the colleges have to investigate.  As long as they fill their spots and get paid they are happy, no?

[ENT Doc]

Panscan wrote:

Show me one single kid who is doing this and is independent and paying for all their stuff without help from parents. One single kid. It’s literally fraud

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So the kid goes to school, takes out loans (less loans) to support their room/board/tuition.  Are they living off their parents then?  The idea here is to take out less loans and not pay the full sticker price.  The 529 is given to the kid to pay off whatever qualifies, which would have been the case anyway.  And even if the parents do help out, is that different from actual independent adults who accept helicopter cash from their parents or who live with their parents or use their parents for daycare, etc.?  This is far from outright fraud IMO.  Pretty crafty, actually.

The difference between this tactic and PSLF is that the taxpayer isn't getting fleeced with this strategy.  PSLF is even more egregious IMO since you signed a contract to pay funds back at X interest rate and then use a program later to scrub out that debt, making the country go into further debt to pay off your tuition bill (which is larger than it would have been otherwise if PSLF didn't exist).  Personally, I think everyone should adopt this disowning the kid strategy.  It would be a shock to the system.  Schools would be forced to charge everyone (nearly) the same price, which is how it should be anyway.

[Panscan]

Program was enacted while signing for the loans, so the argument can be made that pslf was the intention ( although most don't know about it at that time). I don't support pslf and have no interest myself

I don't get what you mean. I think it's stupid college costs different depending on family wealth, but if you truly become an independent adult with 0 family support then I'd say thats gaming the system but not fraud. If you become" independent" and mommy and daddy still pay for everything, that is clearly fraud IMO as you are falsely representing your financial situation. I anticipate the people doing this would overwhelmingly fall into second group.

[DCdoc]

I’m speculating since my kids are all under 3 and I have no personal experience. I will try to use fairly apolitical terms because I don’t want to start a huge debate, but I’m guessing people employing this tactic aren’t billionaires or multimillionaires. From discussions with some acquaintances, there’s a large group of people earning $200-400K with 2-3 kids (that might include a large number of doctors here). They’ve worked hard their whole lives. They earn good salaries but hardly feel wealthy. Many are still paying off their own educational debt. They have sacrificed to buy a fairly modest house in a good school district, but life is expensive. The property taxes in the district are high. Both parents work. Daycare is very expensive. Federal taxes take their toll at a fairly high rate. The price of college has increased exponentially. At their income level, they won’t qualify for financial aid. They’ll pay full price - or even a price above the true marginal cost in order to subsidize those who pay less. The price they pay is the same price a billionaire pays to send their kids to college. But a person earning 1/2 as much might be expected to pay less, potentially nothing, for their child’s school. This hard working family is in a relative “donut hole” being too “rich” to get financial aid, but they have daily monetary stressors and income insecurity. They feel slighted that they pay the same educational price as a billionaire whose kids spent their high school days at a fancy boarding school in MA, but a family earning less pays little or nothing. In their mind, they feel much more similar to the family across town making $100k than they do to a billionaire flying on private jets. By making sacrifices to live in a good school district with high taxes, their kids SAT diversity score might be low. They might feel (rightly or wrongly) their children have a harder time getting into school than an equal academic performer on the other side of town in a different zip code. To these people, they feel the system is rigged against them. It would not surprise me if some of the people who employ a strategy of “disowning” their children to assist them in getting additional financial aid felt like this.

[q-school]

DCdoc wrote:

I’m speculating since my kids are all under 3 and I have no personal experience. I will try to use fairly apolitical terms because I don’t want to start a huge debate, but I’m guessing people employing this tactic aren’t billionaires or multimillionaires. From discussions with some acquaintances, there’s a large group of people earning $200-400K with 2-3 kids (that might include a large number of doctors here). They’ve worked hard their whole lives. They earn good salaries but hardly feel wealthy. Many are still paying off their own educational debt. They have sacrificed to buy a fairly modest house in a good school district, but life is expensive. The property taxes in the district are high. Both parents work. Daycare is very expensive. Federal taxes take their toll at a fairly high rate. The price of college has increased exponentially. At their income level, they won’t qualify for financial aid. They’ll pay full price – or even a price above the true marginal cost in order to subsidize those who pay less. The price they pay is the same price a billionaire pays to send their kids to college. But a person earning 1/2 as much might be expected to pay less, potentially nothing, for their child’s school. This hard working family is in a relative “donut hole” being too “rich” to get financial aid, but they have daily monetary stressors and income insecurity. They feel slighted that they pay the same educational price as a billionaire whose kids spent their high school days at a fancy boarding school in MA, but a family earning less pays little or nothing. In their mind, they feel much more similar to the family across town making $100k than they do to a billionaire flying on private jets. By making sacrifices to live in a good school district with high taxes, their kids SAT diversity score might be low. They might feel (rightly or wrongly) their children have a harder time getting into school than an equal academic performer on the other side of town in a different zip code. To these people, they feel the system is rigged against them. It would not surprise me if some of the people who employ a strategy of “disowning” their children to assist them in getting additional financial aid felt like this.

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exactly right.

i am always somewhat shocked by the number of people i find in the 250k -400k who at least say they haven't started saving for college.  they may have teenagers and five cars and latest iphone and take vacations, but college savings were not prioritized.

not saying this strategy is the right answer, just that they were somewhat ok when the first kid started, felt helpless when the second one started.  one person does something like this and it's like a herd mentality takes over and the ends justify the means, and it takes off.   i think it's not that different than in the past when they used to consider mortgage payments, and people would take out huge mortgages to get more financial aid.  or a different time when they didn't consider home equity at all and people would take their emergency funds and savings and dump it into their houses to deplete and dissipate the numbers they had to write on the lines.  people will always game the system.

it is surprising to me how many people with good incomes feel they have no ability to save enough for college however.  they give themselves a pass on this issue, when they may be ultra sticklers for rules on other issues.

[MPMD]

DCdoc wrote:

Let’s not pretend PSLF is ethically clear-cut. These people signed promissory notes to repay loans they took out, often with the full financial resources to repay the debt easily, but choose to take advantage of a program that was never intended to benefit them.  This is the entire notion regarding a PSLF “side fund.” If PSLF was designed for people who couldn’t repay their loans without huge hardship, how many physicians meet this definition?  1%?  The other 99% could easily repay their loans (medical school loans have historically had a huge rate of return – a lifetime of high pay) but choose not to.  We’ve had parents on this very forum who had initially planned to pay for their kids entire med school tuition decide not to because there’s no point paying a huge sum of money that could otherwise be forgiven. I personally know many people who took way more loans than necessary to live a far more extravagant life in med school than they should, with the knowledge that they would repay the same amount regardless of how much they took out in loans. Some invested the excess. I know a guy who bought a Porsche. No matter how you feel about transferring guardianship to reduce college costs, hopefully we can all agree the entire educational payment system is a mess, increasing yearly in cost far exceeding inflation and with otherwise identical students paying a huge difference in price based on external factors that are unrelated to the product (education) they purchase.

Click to expand...

PSLF is completely ethical. It's kind of difficult to argue that someone following the law and the IRS code is doing something unethical by taking advantage of a specific program. No ones signs a promissory note putting their eternal soul on the line for payment. These kids (in most cases they are basically kids) have no idea what they are doing. We signed a promissory note for a 0% dept loan when my wife started. If her dept had come to us and said "hey we had a great year and we're going to forgive this loan" would it have been unethical for us to say yes to that? Hardly.

I understand why this makes some people so crazy but to me it's not that much different than many other benefits the gov't gives out or loopholes in the tax code.

There are PLENTY of people out there who think that 529s are unethical as they general provide tax shelters for the wealthy. How much agonizing was there a few years ago over whether the backdoor Roth was legal?

[DCdoc]

MPMD wrote:

DCdoc wrote:

Let’s not pretend PSLF is ethically clear-cut. These people signed promissory notes to repay loans they took out, often with the full financial resources to repay the debt easily, but choose to take advantage of a program that was never intended to benefit them.  This is the entire notion regarding a PSLF “side fund.” If PSLF was designed for people who couldn’t repay their loans without huge hardship, how many physicians meet this definition?  1%?  The other 99% could easily repay their loans (medical school loans have historically had a huge rate of return – a lifetime of high pay) but choose not to.  We’ve had parents on this very forum who had initially planned to pay for their kids entire med school tuition decide not to because there’s no point paying a huge sum of money that could otherwise be forgiven. I personally know many people who took way more loans than necessary to live a far more extravagant life in med school than they should, with the knowledge that they would repay the same amount regardless of how much they took out in loans. Some invested the excess. I know a guy who bought a Porsche. No matter how you feel about transferring guardianship to reduce college costs, hopefully we can all agree the entire educational payment system is a mess, increasing yearly in cost far exceeding inflation and with otherwise identical students paying a huge difference in price based on external factors that are unrelated to the product (education) they purchase.

Click to expand…

PSLF is completely ethical. It’s kind of difficult to argue that someone following the law and the IRS code is doing something unethical by taking advantage of a specific program. No ones signs a promissory note putting their eternal soul on the line for payment. These kids (in most cases they are basically kids) have no idea what they are doing. We signed a promissory note for a 0% dept loan when my wife started. If her dept had come to us and said “hey we had a great year and we’re going to forgive this loan” would it have been unethical for us to say yes to that? Hardly.

I understand why this makes some people so crazy but to me it’s not that much different than many other benefits the gov’t gives out or loopholes in the tax code.

There are PLENTY of people out there who think that 529s are unethical as they general provide tax shelters for the wealthy. How much agonizing was there a few years ago over whether the backdoor Roth was legal?

Click to expand...

I am certain the “ethics” of PSLF depend on whom you ask.  Most of us here are doctors and few will disagree with you.  But ask a teacher earning $60k if it’s ethical for a neurosurgeon making $1MM (albeit after 8 years of residency but they don’t understand what that is) if it’s ethical for taxpayers to absorb her $400k of medical school debt (that she could easily afford to pay off) and you might get a very different answer.  She’s been earning 1 MM for the past 12 months but PSLF still thinks she’s earning 60K as a resident because she’s not legally required to update her income until she files taxes the following year (and clearly she doesn’t benefit from updating it earlier).  I’ve been alive long enough now to realize most people feel they are being screwed, everyone feels they pay more than their fair share, and most people think others are taking advantage of the system.  Do you really think if the WSJ wrote an article about how “rich” doctors earning “huge” salaries are having debt forgiven via PSLF that all the comments would be “completely ethical” (your words) or would there be mass outage?

All I’m saying is that I bet the people being “creative” and disowning their kids to get them financial aid are likely also to view themselves as playing within the (admittedly screwed up) rules our educational system employs and might use the logic of a “rich” doctor pursuing PSLF as some element of justification for their own actions.  “If everyone else is taking advantage of the system for their own benefit, why shouldn’t I?”

[MPMD]

DCdoc wrote:

MPMD wrote:

DCdoc wrote:

Let’s not pretend PSLF is ethically clear-cut. These people signed promissory notes to repay loans they took out, often with the full financial resources to repay the debt easily, but choose to take advantage of a program that was never intended to benefit them.  This is the entire notion regarding a PSLF “side fund.” If PSLF was designed for people who couldn’t repay their loans without huge hardship, how many physicians meet this definition?  1%?  The other 99% could easily repay their loans (medical school loans have historically had a huge rate of return – a lifetime of high pay) but choose not to.  We’ve had parents on this very forum who had initially planned to pay for their kids entire med school tuition decide not to because there’s no point paying a huge sum of money that could otherwise be forgiven. I personally know many people who took way more loans than necessary to live a far more extravagant life in med school than they should, with the knowledge that they would repay the same amount regardless of how much they took out in loans. Some invested the excess. I know a guy who bought a Porsche. No matter how you feel about transferring guardianship to reduce college costs, hopefully we can all agree the entire educational payment system is a mess, increasing yearly in cost far exceeding inflation and with otherwise identical students paying a huge difference in price based on external factors that are unrelated to the product (education) they purchase.

Click to expand…

PSLF is completely ethical. It’s kind of difficult to argue that someone following the law and the IRS code is doing something unethical by taking advantage of a specific program. No ones signs a promissory note putting their eternal soul on the line for payment. These kids (in most cases they are basically kids) have no idea what they are doing. We signed a promissory note for a 0% dept loan when my wife started. If her dept had come to us and said “hey we had a great year and we’re going to forgive this loan” would it have been unethical for us to say yes to that? Hardly.

I understand why this makes some people so crazy but to me it’s not that much different than many other benefits the gov’t gives out or loopholes in the tax code.

There are PLENTY of people out there who think that 529s are unethical as they general provide tax shelters for the wealthy. How much agonizing was there a few years ago over whether the backdoor Roth was legal?

Click to expand…

I am certain the “ethics” of PSLF depend on whom you ask.  Most of us here are doctors and few will disagree with you.  But ask a teacher earning $60k if it’s ethical for a neurosurgeon making $1MM (albeit after 8 years of residency but they don’t understand what that is) if it’s ethical for taxpayers to absorb her $400k of medical school debt (that she could easily afford to pay off) and you might get a very different answer.  She’s been earning 1 MM for the past 12 months but PSLF still thinks she’s earning 60K as a resident because she’s not legally required to update her income until she files taxes the following year (and clearly she doesn’t benefit from updating it earlier).  I’ve been alive long enough now to realize most people feel they are being screwed, everyone feels they pay more than their fair share, and most people think others are taking advantage of the system.

 

All I’m saying is that I bet the people being “creative” and disowning their kids to get them financial aid are likely also to view themselves as playing within the (admittedly screwed up) rules our educational system employs and might use the logic of a “rich” doctor pursuing PSLF as some element of justification for their own actions.  “If everyone else is taking advantage of the system for their own benefit, why shouldn’t I?”

Click to expand...

I do not put these things anywhere near each other in terms of ethics.

There is nothing in PSLF that says this is exclusively for teachers or social workers. It's like spiritrider has said about the Roth IRA, if Congress wants to change PSLF they can do so and quite frankly as far as these things go it would be pretty easy to do. There isn't much political risk in making your neurosurgeon in your example pay her loans back. Just say wealthy professionals are taking advantage of the plan and we're going to phase out PSLF benefit over X salary. Even that would be tough, who is in and out? Is someone who is a vice principle at a huge public school making $120k/year with $100k in loans in or out? Are they virtuous or not?

Disowning your children legally so as to pretend that they have no assets or access to money is a completely different ballgame. It involves deception, an action you would never otherwise do, and attempt to use gov't plans that are specifically aimed at low-income students. I think those 3 factors change the ethical valence completely. I'm sure the parents doing this think they are being clever but I'd imagine they'd be pretty reticent to describe a scheme like to a mixed group of peers.

[ENT Doc]

MPMD, don’t conflate legal and ethical. It’s legal to have a kid when you have no means of supporting that child, knowing full well other taxpayers are going to foot the bill for your lives and bad decisions. Ethical? Hardly. It’s legal for me to run away with some floozy, abandoning my wife and kids and send them alimony and child support payments? Ethical?

So PSLF can be both legal and unethical at the same time, which it is.