Does debt really matter with IBR?

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
09042014
Posts: 18282
Joined: Wed Oct 14, 2009 10:47 pm

Re: Does debt really matter with IBR?

Postby 09042014 » Thu Mar 25, 2010 1:05 pm

vanwinkle wrote:
Desert Fox wrote:You are talking best case, I'm talking about what happens to the 30% of the people in your class who don't make big law, clerkships, or a government job. They have 200K in debt and a 50K a year job. Those people are going to compound some serious debt.

A 50K/yr job is most likely going to be at a place that qualifies for the PI program. They can just ride out the ten years and discharge their debt, worst case scenario.

Also, fun fact about IBR: If your repayment amount is not large enough to cover accruing interest, then interest accrues but does not compound. You keep piling up 8.5% on what you owe, but not 8.5% on that 8.5%. That will greatly lessen the impact of interest over time. Source: http://www.ibrinfo.org/faq.vp.html#_How_does_IBR_

I'm sure this will have an effect on your analysis since it removes the exponential nature of compounding over time.


Oh I didn't know that about the interest.

But what I don't believe is that those 50K a year jobs are going to qualify for PI. Sure some of them will, but I'm sure some students and UVA get forced into working at small firms that pay 50K. At least they will ITE.

Anonymous Loser
Posts: 568
Joined: Fri Sep 11, 2009 11:17 am

Re: Does debt really matter with IBR?

Postby Anonymous Loser » Thu Mar 25, 2010 1:43 pm

swc65 wrote:
Anonymous Loser wrote:
beesknees wrote:

And the whole thing about federal loans and bankruptcy is that you cannot discharge education debt with bankruptcy... meaning that even if you file chapter 11 and all of your other debt is cleared, you will always owe student loans. Meaning that if you were irresponsible and took out car loans, home loans, and went on credit card sprees, you'd be less screwed than taking out education debt because you can never ever have it written off.



I'm not sure why this myth that student loan debt is not dischargeable in bankruptcy is so persistent. I've long since learned that TLS posters will not bother to make even the most cursory investigation to determine if what they are saying is accurate, but for God's sake, just this week the Supreme Court ruled in favor of an individual seeking to discharge student loan debt through bankruptcy. See United Student Aid Funds, Inc. v. Espinosa, No. 08–1134 (Mar. 23, 2010), available at http://www.supremecourt.gov/opinions/09pdf/08-1134.pdf



Have you read this case? It is an extremely narrow ruling. It is mostly a ruling about a technicality. The previous court ruled and the Dept of Ed agreed (read did not object properly) that the student's INTEREST would be discharged in bankruptcy if the student paid the the principal. The student paid the principal and then the Dept. of Ed. tried to go after him for the interest again because there had never been an undue hardship ruling (something that is generally required to discharge student loans in bankruptcy). The Court ruled that the Dept. of Ed. could not go back to get the interest after the agreement was made. Anyway, this is not a case that makes it significantly easier to discharge student loans in bankruptcy court. These things are in the first paragraph of the ruling.

Also, student loans are not IMPOSSIBLE to discharge in bankruptcy. They are just more difficult to discharge than many other types of debt.



I'm not suggesting that Espinosa stands for a more lenient interpretation of the bankruptcy code. I'm merely pointing out that the fact that is it widely accepted that where there is a showing that failure to discharge the debt would cause undue hardship, student loan debt can be discharged through a bankruptcy proceeding. As a result of the Espinosa ruling, this rule has been discussed in some fashion by virtually every major media outlet in the United States over the past few days. Indeed, simply googling "student loan bankruptcy" yields nearly 1000 news articles produced in the past week alone. Unfortunately, despite this treatment by the mainstream media, recognition of this rule has apparently not yet penetrated the TLS echo chamber, a situation I hoped to rectify.

User avatar
NayBoer
Posts: 1013
Joined: Wed Mar 04, 2009 3:24 pm

Re: Does debt really matter with IBR?

Postby NayBoer » Thu Mar 25, 2010 2:44 pm

Desert Fox wrote:
vanwinkle wrote:
Desert Fox wrote:You are talking best case, I'm talking about what happens to the 30% of the people in your class who don't make big law, clerkships, or a government job. They have 200K in debt and a 50K a year job. Those people are going to compound some serious debt.

A 50K/yr job is most likely going to be at a place that qualifies for the PI program. They can just ride out the ten years and discharge their debt, worst case scenario.

Also, fun fact about IBR: If your repayment amount is not large enough to cover accruing interest, then interest accrues but does not compound. You keep piling up 8.5% on what you owe, but not 8.5% on that 8.5%. That will greatly lessen the impact of interest over time. Source: http://www.ibrinfo.org/faq.vp.html#_How_does_IBR_

I'm sure this will have an effect on your analysis since it removes the exponential nature of compounding over time.


Oh I didn't know that about the interest.

But what I don't believe is that those 50K a year jobs are going to qualify for PI. Sure some of them will, but I'm sure some students and UVA get forced into working at small firms that pay 50K. At least they will ITE.
Yeah, what if you're working as a clerk or paralegal (I've seen many JD resumes trying to get work advertised for people with BAs and 1 year general WE), or working for a low-compensation personal injury firm, or working outside the legal field. Just because it's low-paying doesn't mean it's public interest.




Return to “Financial Aid”

Who is online

Users browsing this forum: No registered users and 1 guest