IBR Q's

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Anonymous User
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IBR Q's

Postby Anonymous User » Tue Dec 13, 2011 4:14 am

Started drinking, started thinking... since I'm never going to be able to pay off my student loan debt, shouldn't I just take out the absolute maximum each semester and start going to vegas and other places on the governments dime???

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Bronx Bum
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Re: IBR Q's

Postby Bronx Bum » Tue Dec 13, 2011 4:40 am

IBR is going to be short lived

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NinerFan
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Re: IBR Q's

Postby NinerFan » Tue Dec 13, 2011 4:55 am

Defaulting will destroy your credit, and won't even discharge the loans. I'd stay the course and try to pay them off.

Voodoo94
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Re: IBR Q's

Postby Voodoo94 » Tue Dec 13, 2011 9:35 am

IBR is going to be short lived


+1

It's on very tenuous ground as it is and if the Senate flips next year, it may be as good as gone.

IBR is not any type of rational, long range plan for managing student loan debt.

conn09
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Re: IBR Q's

Postby conn09 » Tue Dec 13, 2011 11:54 am

Voodoo94 wrote:
IBR is going to be short lived


+1

It's on very tenuous ground as it is and if the Senate flips next year, it may be as good as gone.

IBR is not any type of rational, long range plan for managing student loan debt.


Wouldn't he be grandfathered in?

duckmoney
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Re: IBR Q's

Postby duckmoney » Tue Dec 13, 2011 12:05 pm

Honestly that sounds like a great idea to me. If you can't make existing payments on a 10-year plan, then you're going to go on IBR anyway. Once you go on IBR, you're never going to be able to pay off the debt since your interest will rise faster than you're paying it off. After 25 years, you will get hit by the tax bomb, and you will go bankrupt. However, you know this is coming, so you have time to prepare.

You may as well take out the extra loans and keep the cash on hand. Obviously, there are much better uses for it than blowing it Vegas (down payment on house, put it in roth IRA, save up for when your shitlaw firm fires you), but if you prefer the boozing and the whoring, hey, it's a free country.

The threat of Congress getting rid of it is real, but I think you would be fine. The courts have a habit of strictly enforcing anything the government says or does that induces any sort of reliance.

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Re: IBR Q's

Postby ToTransferOrNot » Tue Dec 13, 2011 12:07 pm

conn09 wrote:
Voodoo94 wrote:
IBR is going to be short lived


+1

It's on very tenuous ground as it is and if the Senate flips next year, it may be as good as gone.

IBR is not any type of rational, long range plan for managing student loan debt.


Wouldn't he be grandfathered in?


IBR isn't a "contract," and even if it was, the federal government can breach any contract it wants to breach. If Congress wanted to, they could wait until the 24th year of IBR and then ax the forgiveness; short of any political ramifications, there would be no recourse aside from a doomed-to-fail substantive due process attempt.

lol duck, what are you talking about? Sovereign Immunity whatnow? The general waiver of sovereign immunity vis-a-vis contract claims could easily be carved out in the IBR-repealing legislation.

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Re: IBR Q's

Postby Anonymous User » Tue Dec 13, 2011 12:21 pm

The government has never removed a student loan program retroactively. Once you are paying into IBR and documenting your public service work, the chances of the 10-year PSLF program being swiped out from under you are exceedingly slim.

ToTransferOrNot
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Re: IBR Q's

Postby ToTransferOrNot » Tue Dec 13, 2011 12:28 pm

Anonymous User wrote:The government has never removed a student loan program retroactively. Once you are paying into IBR and documenting your public service work, the chances of the 10-year PSLF program being swiped out from under you are exceedingly slim.


There's never been a student loan program with the same kind of bottom-line implication of PSLF and the 25-year forgiveness.

I don't think they will retroactively torch the programs - but there would be nothing stopping them if they wanted to.

Voodoo94
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Re: IBR Q's

Postby Voodoo94 » Tue Dec 13, 2011 12:47 pm

The government has never removed a student loan program retroactively. Once you are paying into IBR and documenting your public service work, the chances of the 10-year PSLF program being swiped out from under you are exceedingly slim.



The PSLF program may be more secure, but the 25 year repayment is unsustainable and housed in the Department of Education - a Cabinet Department that may be the victim of savage cuts as part of domestic discretionary spending austerity. The Government paid nearly $57 billion in student loan acquisition during FY 2010. Despite rosy projections, this number will balloon under IBR. I just don't see the money being there in the long run. Perhaps I am a cynic, but this is my sixth budget cycle in the Federal government. Departments like Education & DOJ and agencies like EPA are incredibly squeezed right now.

memo2partner
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Re: IBR Q's

Postby memo2partner » Tue Dec 13, 2011 12:52 pm

I doubt the government will retroactively repeal IBR (if you've got a loan now under IBR, you should be good). But, they might take away the option for future loans.

Silly question for the tax folks out there--if the government forgives your debt after 25 years and you are insolvent, don't you get to avoid the tax bomb? (I almost want to say section 108 of the tax code applies?

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Re: IBR Q's

Postby Anonymous User » Tue Dec 13, 2011 2:12 pm

Yes you would be discharged to the extent of your insolvency- but your net worth would be wiped out

Not a happy prospect- and more than likely you will end up with a tax lien on your home, or have to enter a repayment plan.

(3) Insolvent
For purposes of this section, the term “insolvent” means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer’s assets and liabilities immediately before the discharge.

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leobowski
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Re: IBR Q's

Postby leobowski » Tue Dec 13, 2011 3:41 pm

I'd love to see a legitimate source from the "IBR is doomed" people. The program makes sense from a fiscal standpoint. It's designed to still regain some money from those at a high risk of default. It's not exactly some kind of entitlement/benefit in the traditional sense.

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Re: IBR Q's

Postby ToTransferOrNot » Tue Dec 13, 2011 3:44 pm

leobowski wrote:I'd love to see a legitimate source from the "IBR is doomed" people. The program makes sense from a fiscal standpoint. It's designed to still regain some money from those at a high risk of default. It's not exactly some kind of entitlement/benefit in the traditional sense.


I don't think IBR itself is doomed. But IBR and the discharge that go along with it are not mutually dependent. Explain how, exactly, whether a 25-year discharge exists is relevant to regaining some money from someone at risk of default? The government could just as easily have you be in IBR forever. You could argue that without the discharge on the horizon, people would just stop paying; but that doesn't work, because if you have a job (to make the on-time IBR payments that are required for discharge), the department of ed can garnish it.

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leobowski
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Re: IBR Q's

Postby leobowski » Tue Dec 13, 2011 5:33 pm

ToTransferOrNot wrote:
leobowski wrote:I'd love to see a legitimate source from the "IBR is doomed" people. The program makes sense from a fiscal standpoint. It's designed to still regain some money from those at a high risk of default. It's not exactly some kind of entitlement/benefit in the traditional sense.


I don't think IBR itself is doomed. But IBR and the discharge that go along with it are not mutually dependent. Explain how, exactly, whether a 25-year discharge exists is relevant to regaining some money from someone at risk of default? The government could just as easily have you be in IBR forever. You could argue that without the discharge on the horizon, people would just stop paying; but that doesn't work, because if you have a job (to make the on-time IBR payments that are required for discharge), the department of ed can garnish it.



The eventual discharge provides an incentive to pay instead of defaulting. This incentive, in turn, reduces the risk of default from those likely to default. Of course the govt. won't recoup the full amount but that's much better than selling the debt for pennies on the dollar. Paying forever--basically indentured servitude--provides little to no incentive, and this whole system falls apart. IMO.

ToTransferOrNot
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Re: IBR Q's

Postby ToTransferOrNot » Tue Dec 13, 2011 5:47 pm

leobowski wrote:
ToTransferOrNot wrote:
leobowski wrote:I'd love to see a legitimate source from the "IBR is doomed" people. The program makes sense from a fiscal standpoint. It's designed to still regain some money from those at a high risk of default. It's not exactly some kind of entitlement/benefit in the traditional sense.


I don't think IBR itself is doomed. But IBR and the discharge that go along with it are not mutually dependent. Explain how, exactly, whether a 25-year discharge exists is relevant to regaining some money from someone at risk of default? The government could just as easily have you be in IBR forever. You could argue that without the discharge on the horizon, people would just stop paying; but that doesn't work, because if you have a job (to make the on-time IBR payments that are required for discharge), the department of ed can garnish it.



The eventual discharge provides an incentive to pay instead of defaulting. This incentive, in turn, reduces the risk of default from those likely to default. Of course the govt. won't recoup the full amount but that's much better than selling the debt for pennies on the dollar. Paying forever--basically indentured servitude--provides little to no incentive, and this whole system falls apart. IMO.


Er, the incentive to pay instead of defaulting is the fact that the federal government has full, non-dischargeable garnishment power over every penny you ever make, every tax return, etc. They don't need the carrot of a 25-year discharge: the feds could just as easily say "we can garnish your income, and the amount of the garnish is 15% of your 'disposable' income" (i.e., the same amount that is currently paid under IBR).

Sure, you could just never work again (?) - but that would leave the government in the same place as someone without a job "on IBR" (payments of $0).

The only benefit is voluntary payment vs garnishment - but frankly, the fed's garnishing powers are fairly low-cost to implement.

Don't try to make the 25-year forgiveness out to be some economically rational program. Companies who have to sell debt or pay for an expensive collections process have reason to "make a deal" - the government does not (and this is particularly true now that everything is done via direct lending).

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Re: IBR Q's

Postby gulcregret » Tue Dec 13, 2011 6:02 pm

IBR is not going anywhere, even very conservative budget haws are not targeting the program, yet. They got the subsidized stafford loans removed last year, so they are good for now. This is inside information (I work on the Hill).

Loans are treated differently in the federal budget, so it really doesn't have a bottom line effect. The net present value is reflected when the loan is made, future receipts or costs are not included on a cash basis. If the government wipes out loans later, it does nothing to the annual budget deficit and the national debt would have already taken into account the amount of the loan. It's kind of a budget myth in a way, for federal scoring purposes. Besides no one knows the actual cost because it is so far away and theoretically no one could need a loan forgiveness. Paying less or no interest does not hurt the government's bottom line. Mass loan forgiveness, which won't happen anyway, would be accounted for as a past loss.

ToTransferOrNot
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Re: IBR Q's

Postby ToTransferOrNot » Tue Dec 13, 2011 6:04 pm

gulcregret wrote:IBR is not going anywhere, even very conservative budget haws are not targeting the program, yet. They got the subsidized stafford loans removed last year, so they are good for now. This is inside information (I work on the Hill).

Loans are treated differently in the federal budget, so it really doesn't have a bottom line effect. The net present value is reflected when the loan is made, future receipts or costs are not included on a cash basis. If the government wipes out loans later, it does nothing to the annual budget deficit and the national debt would have already taken into account the amount of the loan. It's kind of a budget myth in a way, for federal scoring purposes. Besides no one knows the actual cost because it is so far away and theoretically no one could need a loan forgiveness. Paying less or no interest does not hurt the government's bottom line. Mass loan forgiveness, which won't happen anyway, would be accounted for as a past loss.


Wouldn't the net present value have to account for the possibility of the 25-year forgiveness (or the 10-year forgiveness)?

Let me clarify: In any court dealing with a NPV calculation, those possibilities would need to be factored in. But it wouldn't surprise me if the Government's notoriously loltastic accounting methods don't account for it.

Also, thanks for the info - interesting.

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Re: IBR Q's

Postby gulcregret » Wed Dec 21, 2011 5:02 pm

So NPV would need to take into account default rates and loan forgiveness. HOWEVER, OMB and CBO do not estimate effects to the baseline past a 5 year or 10 year window. So, it is very hard to estimate the number of loans and the amounts that could be potentially forgiven within 10 years. Only the public interest component would qualify for this forgiveness. Let's face it, most people will not do public interest for 10 years receiving a law degree. I fully anticipate and expect to do so, but if Patton Boggs or KL Gates comes calling to make me counsel (lobbyist, basically) in 6 years or so, for probably 5 times the salary, I could see myself pulling a Steve Miller Band (very bad reference and somewhat shameful).

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Ialdabaoth
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Re: IBR Q's

Postby Ialdabaoth » Wed Dec 21, 2011 5:18 pm

gulcregret wrote:So NPV would need to take into account default rates and loan forgiveness. HOWEVER, OMB and CBO do not estimate effects to the baseline past a 5 year or 10 year window. So, it is very hard to estimate the number of loans and the amounts that could be potentially forgiven within 10 years. Only the public interest component would qualify for this forgiveness. Let's face it, most people will not do public interest for 10 years receiving a law degree. I fully anticipate and expect to do so, but if Patton Boggs or KL Gates comes calling to make me counsel (lobbyist, basically) in 6 years or so, for probably 5 times the salary, I could see myself pulling a Steve Miller Band (very bad reference and somewhat shameful).


I'm pretty new to learning about IBR/PSLF/etc, and it sounds like you know your stuff.

I'll be applying next cycle and want to work in PI environmental or government long term. (Yes, I realize it's insanely competitive to land one of these jobs immediately upon graduation, and I wouldn't have any problem doing other work for a couple years.)

Up until now I have felt pretty comfortable with the idea of borrowing $150,000+ to pay for a T10 with a a good LRAP tied to IBR. Do you think that's an irresponsible perspective? Thanks!

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Ialdabaoth
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Re: IBR Q's

Postby Ialdabaoth » Fri Dec 23, 2011 12:22 am

Bump for my above question. TIA!

Anonymous Loser
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Re: IBR Q's

Postby Anonymous Loser » Fri Dec 23, 2011 1:35 am

gulcregret wrote:IBR is not going anywhere, even very conservative budget haws are not targeting the program, yet. They got the subsidized stafford loans removed last year, so they are good for now. This is inside information (I work on the Hill).

Loans are treated differently in the federal budget, so it really doesn't have a bottom line effect. The net present value is reflected when the loan is made, future receipts or costs are not included on a cash basis. If the government wipes out loans later, it does nothing to the annual budget deficit and the national debt would have already taken into account the amount of the loan. It's kind of a budget myth in a way, for federal scoring purposes. Besides no one knows the actual cost because it is so far away and theoretically no one could need a loan forgiveness. Paying less or no interest does not hurt the government's bottom line. Mass loan forgiveness, which won't happen anyway, would be accounted for as a past loss.


On this point, even though the government accounting is misleading, there are some circumstances in which the NPV of payments made under the IBR program would exceed those made under the traditional repayment scheme:

(Sorry about the formatting: TLS wont let me space the columns properly)


Total Graduating Debt: $100,000.00
Initial AGI: $50,000.00
Income Growth Rate: 4.00%
Interest Rate: 6.80%
Discount Rate: 5.80%
Family Size: 1
Poverty Line: $10,830.00
Tax Filing Status: Single

Loan Forgiveness
Forgiveness Year: 25 years

Income-Based Repayment Fixed Monthly Repayment
Years in Repayment: 25 years 10 years
Minimum Payment: $10.00 $50.00

Monthly Payments
First Payment: $421.94 $1,150.80
10th Year Payment: $624.62 $1,150.80
Max Monthly Payment: $1,150.80 $1,150.80

Total Amount Paid: $223,040.47 $138,096.57
NPV of Total Paid: $105,419.02 $105,310.19

Total Accrued Interest: $139,497.13 $38,096.57
Capitalized Interest: -$7,034.30 $0.00
Total Interest Paid: -$132,462.84 -$38,096.57
Total Unpaid Interest: $0.00 $0.00

Total Amount Paid: $223,040.47 $138,096.57
Total Interest Paid: -$132,462.84 -$38,096.57
Payments to Principal: $90,577.63 $100,000.00

Total Debt: $100,000.00 $100,000.00
Capitalized Interest: $7,034.30 $0.00
Payments to Principal: -$90,577.63 -$100,000.00
Remaining Balance: $16,456.66 $0.00

Government Payments
Loan Forgiveness: 25 years
100.00%
Total Unpaid Interest: $0.00 $0.00
Balance Write-off: $16,456.66 $0.00
Total Forgiveness: $16,456.66




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