Why do people think IBR is only for public interest?

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YaSvoboden
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Re: Why do people think IBR is only for public interest?

Postby YaSvoboden » Tue Apr 19, 2011 8:34 pm

geoduck wrote:To the people doing the math:

Please learn how income tax brackets work. If you know how they work, please stop simplifying to flat rates. It's extremely inaccurate and helps further the completely false idea that, for example, people in the 25% tax bracket pay the government 25% of all of their income.


I think it's pretty obvious we know what brackets are, but the people looking at this are probably 0Ls. The tax brackets that matter are from 2039, as soon as you have those available please post them and I will be sure to update all calculations.

Until that point we may as well assume something that seems reasonable as a marginal rate.

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Stanford4Me
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Re: Why do people think IBR is only for public interest?

Postby Stanford4Me » Tue Apr 19, 2011 8:46 pm

YaSvoboden wrote:
geoduck wrote:To the people doing the math:

Please learn how income tax brackets work. If you know how they work, please stop simplifying to flat rates. It's extremely inaccurate and helps further the completely false idea that, for example, people in the 25% tax bracket pay the government 25% of all of their income.


I think it's pretty obvious we know what brackets are, but the people looking at this are probably 0Ls. The tax brackets that matter are from 2039, as soon as you have those available please post them and I will be sure to update all calculations.

Until that point we may as well assume something that seems reasonable as a marginal rate.

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predent/prelaw
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Re: Why do people think IBR is only for public interest?

Postby predent/prelaw » Tue Apr 19, 2011 9:04 pm

aliarrow wrote:
Stanford4Me wrote:
YaSvoboden wrote:
Well to be honest that kinda asks you to project exactly what tax law will be in 25 years. But, forgiveness of debt is income, so you are taxed on every dollar forgiven. Say your payments only covered interest that whole time with IBR (I haven't looked into IBR, but that actually seems generous with those payment amounts.) So you are forgiven of 150,000 and have to report that as income. Who the hell knows what the tax brackets will be, I suspect they will go up a lot. But let's say you make 80k that year and therefore are taxed on 230,000 at a generously low 30%. You owe 69,000 in tax on your 80,000 in income.

Obviously there are a lot of assumptions in there, but it doesn't look pretty for that year.

That's crazy.


No, that's VERY mild and generous.

Say you take out $200,000 in loans and have a $60,000 income
Like I said, you pay $550/month, or $6,600/year.
Well 7.9% on $200,000 is $15,800/year.

So that means your loan balance will go up $9,200 after the first year.
So now you have to pay interest on $209,200, while still only paying $6,600/year.

Do this for 25 years and the balance ends up around $373,000.00
We'll just put it at a straight 28% tax bracket for simplicity.
28% of $373,000.00+$60,0000 = $121,240.00 in taxes on $60,000 income...

And this is coming from someone who isn't debt averse and doesn't mind paying sticker...
Its just what the math says.

That said,
I still think sticker is ok, you just CANT go into the private sector if you don't hit biglaw (or at least the fabled upper midlaw). The good news is that many public jobs qualify for public loan forgiveness (teaching, peace corps, military, PI, any govt agency, etc)



Why can you not pay the interest? The government site only says this about it so I am assuming you can pay the interest?

Q36 Q&A #2 stated that the government may pay some of the interest on my subsidized loans for the first
three years. How does this work?
A36 Under the IBR Plan, your monthly payment amount may not cover all of the interest that accrues on
your loans each month. (This is called negative amortization.) If this happens, the government will pay
the remaining unpaid accrued interest that is due each month on your subsidized loans (including the
subsidized portion of a Consolidation Loan) for up to three consecutive years from the date you begin
repaying your loans under IBR. For example, if the monthly interest that accrues on your subsidized
loans is $40, but your monthly IBR payment only covers $25 of this amount, the government will pay
the remaining $15.
You are responsible for paying all of the interest that accrues on your unsubsidized loans, as well as all
of the interest that accrues on your subsidized loans after the end of the 3-year interest subsidy period.

Interest that is not covered by your monthly payment will continue to accumulate and will be capitalized
(added to your loan principal balance) when you are determined to no longer have a “partial financial
hardship,” or if you leave the IBR Plan.

Also what is to stop you assuming you are not doing public interest from using the IBR for a few year starting at a job that pays shit in the beginning and turning it into something that makes a lot. Then switching over to regular 10 year plan?

aliarrow
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Re: Why do people think IBR is only for public interest?

Postby aliarrow » Tue Apr 19, 2011 9:32 pm

predent/prelaw wrote:
aliarrow wrote:
Stanford4Me wrote:
YaSvoboden wrote:
Well to be honest that kinda asks you to project exactly what tax law will be in 25 years. But, forgiveness of debt is income, so you are taxed on every dollar forgiven. Say your payments only covered interest that whole time with IBR (I haven't looked into IBR, but that actually seems generous with those payment amounts.) So you are forgiven of 150,000 and have to report that as income. Who the hell knows what the tax brackets will be, I suspect they will go up a lot. But let's say you make 80k that year and therefore are taxed on 230,000 at a generously low 30%. You owe 69,000 in tax on your 80,000 in income.

Obviously there are a lot of assumptions in there, but it doesn't look pretty for that year.

That's crazy.


No, that's VERY mild and generous.

Say you take out $200,000 in loans and have a $60,000 income
Like I said, you pay $550/month, or $6,600/year.
Well 7.9% on $200,000 is $15,800/year.

So that means your loan balance will go up $9,200 after the first year.
So now you have to pay interest on $209,200, while still only paying $6,600/year.

Do this for 25 years and the balance ends up around $373,000.00
We'll just put it at a straight 28% tax bracket for simplicity.
28% of $373,000.00+$60,0000 = $121,240.00 in taxes on $60,000 income...

And this is coming from someone who isn't debt averse and doesn't mind paying sticker...
Its just what the math says.

That said,
I still think sticker is ok, you just CANT go into the private sector if you don't hit biglaw (or at least the fabled upper midlaw). The good news is that many public jobs qualify for public loan forgiveness (teaching, peace corps, military, PI, any govt agency, etc)



Why can you not pay the interest? The government site only says this about it so I am assuming you can pay the interest?

Q36 Q&A #2 stated that the government may pay some of the interest on my subsidized loans for the first
three years. How does this work?
A36 Under the IBR Plan, your monthly payment amount may not cover all of the interest that accrues on
your loans each month. (This is called negative amortization.) If this happens, the government will pay
the remaining unpaid accrued interest that is due each month on your subsidized loans (including the
subsidized portion of a Consolidation Loan) for up to three consecutive years from the date you begin
repaying your loans under IBR. For example, if the monthly interest that accrues on your subsidized
loans is $40, but your monthly IBR payment only covers $25 of this amount, the government will pay
the remaining $15.
You are responsible for paying all of the interest that accrues on your unsubsidized loans, as well as all
of the interest that accrues on your subsidized loans after the end of the 3-year interest subsidy period.

Interest that is not covered by your monthly payment will continue to accumulate and will be capitalized
(added to your loan principal balance) when you are determined to no longer have a “partial financial
hardship,” or if you leave the IBR Plan.

Also what is to stop you assuming you are not doing public interest from using the IBR for a few year starting at a job that pays shit in the beginning and turning it into something that makes a lot. Then switching over to regular 10 year plan?


Subsidized interest during school isn't what I was referring to. And subsidized interest only applies to the first $8,500 per year in loan money. What I'm saying is that by the time you graduate say you have $200,000 in loans, well the interest alone on that is $15,800 per year. So if you make $60,000 a year, the IBR payments would only be $6,600 per year, so you wouldn't be contributing enough to cover the interest. If you wanted to you could make $15,800+ per year in loan payments so you do cover the interest, but that sorta defeats the whole purpose of IBR, you may as well do the 25-year pay-off plan at that point.

You can switch plans at any time, but interest will accrue, and if you don't pay all the interest in the beginning it will just continue to rapidly grow your principle leaving you with even more to pay once you start the 10 year plan.

And to GeoDuck, yes I know how tax brackets work. That's why several posts above yours I linked to a thread where I wrote out and made calculations based off Federal tax brackets, state brackets for the major markets, and calculated SSI and Medicare contributions. 28% was a quick estimate for convenience, right after I provided a link to something more exact.

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geoduck
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Re: Why do people think IBR is only for public interest?

Postby geoduck » Wed Apr 20, 2011 12:40 pm

aliarrow wrote:And to GeoDuck, yes I know how tax brackets work. That's why several posts above yours I linked to a thread where I wrote out and made calculations based off Federal tax brackets, state brackets for the major markets, and calculated SSI and Medicare contributions. 28% was a quick estimate for convenience, right after I provided a link to something more exact.


Then thank you. Misrepresentation of income tax is a big pet peeve of mine with all the flat-taxers running around using the fact that the average Joe thinks he'd pay less tax on a flat tax of 20% when he's just barely breaking the 25% bracket to confuse the issue. I didn't follow the link, obviously, but kudos for doing the proper work over there.

r6_philly
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Re: Why do people think IBR is only for public interest?

Postby r6_philly » Fri Apr 22, 2011 4:05 pm

Stanford4Me wrote:I, personally, also don't like the idea of going incurring a lot of debt and relying heavily on the government to pay it off.


First of all you are relying on the government to give you the loans, so why not rely on it to pay them back? I don't get the justification because you surely don't have enough credit/assets to get the loans in the first place without its help.

r6_philly
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Re: Why do people think IBR is only for public interest?

Postby r6_philly » Fri Apr 22, 2011 4:11 pm

aliarrow wrote:
Subsidized interest during school isn't what I was referring to. And subsidized interest only applies to the first $8,500 per year in loan money. What I'm saying is that by the time you graduate say you have $200,000 in loans, well the interest alone on that is $15,800 per year. So if you make $60,000 a year, the IBR payments would only be $6,600 per year, so you wouldn't be contributing enough to cover the interest. If you wanted to you could make $15,800+ per year in loan payments so you do cover the interest, but that sorta defeats the whole purpose of IBR, you may as well do the 25-year pay-off plan at that point.

You can switch plans at any time, but interest will accrue, and if you don't pay all the interest in the beginning it will just continue to rapidly grow your principle leaving you with even more to pay once you start the 10 year plan.

And to GeoDuck, yes I know how tax brackets work. That's why several posts above yours I linked to a thread where I wrote out and made calculations based off Federal tax brackets, state brackets for the major markets, and calculated SSI and Medicare contributions. 28% was a quick estimate for convenience, right after I provided a link to something more exact.



But think of it this way. It's like going to LS for free if you make 1/3 of interest payments for 25 years and end up debt free. IBR income limits go up once you get married and have dependents, so you will probably be covered at the same amount even if your income increase over time. On top of that max out your 401k/other contributions to reduce your taxable income. It works out as long as you don't move into a 150k job later on. I guess why it works better for PI careers.

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bk1
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Re: Why do people think IBR is only for public interest?

Postby bk1 » Fri Apr 22, 2011 6:15 pm

r6_philly wrote:
Stanford4Me wrote:I, personally, also don't like the idea of going incurring a lot of debt and relying heavily on the government to pay it off.


First of all you are relying on the government to give you the loans, so why not rely on it to pay them back? I don't get the justification because you surely don't have enough credit/assets to get the loans in the first place without its help.


Relying on the government to give you loans requires that they maintain their current policy for 3 years. Relying on them to pay it back requires that they maintain their policy for 10 (or 25) years.

r6_philly
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Re: Why do people think IBR is only for public interest?

Postby r6_philly » Fri Apr 22, 2011 6:25 pm

bk1 wrote:
r6_philly wrote:
Stanford4Me wrote:I, personally, also don't like the idea of going incurring a lot of debt and relying heavily on the government to pay it off.


First of all you are relying on the government to give you the loans, so why not rely on it to pay them back? I don't get the justification because you surely don't have enough credit/assets to get the loans in the first place without its help.


Relying on the government to give you loans requires that they maintain their current policy for 3 years. Relying on them to pay it back requires that they maintain their policy for 10 (or 25) years.


I think we had this discussion before, there are obviously two views to this. If they are not going to allow discharge of student loans through bankruptcy, they will have to help people pay it. Now that they are direct loans, you can count on them keeping some sort of policy in tact. If they would hand out billions to support bad private contracts (mortgages), they are going to continue to support student loans. Especially if the people who are impacted by the policy make up the majority of tax payers (people who actually have tax liability).

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bk1
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Re: Why do people think IBR is only for public interest?

Postby bk1 » Fri Apr 22, 2011 6:25 pm

r6_philly wrote:I think we had this discussion before, there are obviously two views to this. If they are not going to allow discharge of student loans through bankruptcy, they will have to help people pay it. Now that they are direct loans, you can count on them keeping some sort of policy in tact. If they would hand out billions to support bad private contracts (mortgages), they are going to continue to support student loans. Especially if the people who are impacted by the policy make up the majority of tax payers (people who actually have tax liability).

I don't trust lawmakers to be this logical about it.

r6_philly
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Re: Why do people think IBR is only for public interest?

Postby r6_philly » Fri Apr 22, 2011 6:30 pm

bk1 wrote:
r6_philly wrote:I think we had this discussion before, there are obviously two views to this. If they are not going to allow discharge of student loans through bankruptcy, they will have to help people pay it. Now that they are direct loans, you can count on them keeping some sort of policy in tact. If they would hand out billions to support bad private contracts (mortgages), they are going to continue to support student loans. Especially if the people who are impacted by the policy make up the majority of tax payers (people who actually have tax liability).

I don't trust lawmakers to be this logical about it.


People who owe 100k+ federal loans are going to be the most political powerful/influential class (you can't get more than 40k through UG). I have no doubt that at least half of my current classmates are going to be either law makers or working for law makers (some already are), and they are accumulating a lot of student loan debts. They are all banking on repayment assistance. I suspect the cohorts of lawyers and doctors are going to make sure the policy stays the course.

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bk1
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Re: Why do people think IBR is only for public interest?

Postby bk1 » Fri Apr 22, 2011 6:32 pm

r6_philly wrote:People who owe 100k+ federal loans are going to be the most political powerful/influential class (you can't get more than 40k through UG). I have no doubt that at least half of my current classmates are going to be either law makers or working for law makers (some already are), and they are accumulating a lot of student loan debts. They are all banking on repayment assistance. I suspect the cohorts of lawyers and doctors are going to make sure the policy stays the course.


Oh I don't actually think it is going to change (I'm not one of those "can't trust the government to pull through" people), but I can understand why others don't want to trust that recovering from that level of indebtedness to the government.

r6_philly
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Re: Why do people think IBR is only for public interest?

Postby r6_philly » Fri Apr 22, 2011 6:37 pm

bk1 wrote:
r6_philly wrote:People who owe 100k+ federal loans are going to be the most political powerful/influential class (you can't get more than 40k through UG). I have no doubt that at least half of my current classmates are going to be either law makers or working for law makers (some already are), and they are accumulating a lot of student loan debts. They are all banking on repayment assistance. I suspect the cohorts of lawyers and doctors are going to make sure the policy stays the course.


Oh I don't actually think it is going to change (I'm not one of those "can't trust the government to pull through" people), but I can understand why others don't want to trust that recovering from that level of indebtedness to the government.


Those people need to rethink their political influence in 3 years 8) if lawyers are going to get screwed by our government/policies, is there hope for anyone else?

Off topic, but I always wonder, how many TLS alums will end up in congress one day. Could it be possible that we actually have a future president among us?




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