PSLF revisions: New budget proposal screws anyone in PI. Forum

[NCGuy]

There should be a way to recalculate debt:income ratio that takes into account reduced payment.

Last time I checked, that is what got us into the last/current recession.....

Anecdotal I know but I know a couple of 3Ls who (stupidly) bought cars and got them financed. I'm not sure what they told their banks though.

Generally, with sub-standard credit quality, one just pays a higher interest rate and/or larger down payment to account for the increased risk.

Sub-prime mortgages weren't backed in the same way that student loans. The government (by statute) limits your payments to 10% of your discretionary income. With mortgages, the government just encouraged banks to take dumb risks without providing any benefits to the consumer. They really aren't comparable in any way.

[mt2165]

So a question out of ignorance. I was accepted to Columbia, would pay sticker, and am fully committed to PI/Gov. Columbia has a LRAP program that from my understanding is separate of IBR/PAYE, does that mean my situation is likely ok (nothing changes for me even if the new budget passes)? Since Columbia forgives after 5 years? Do you think with changes to PLSF that many schools with IBR independent LRAP's will change them accordingly?

[Dingo Starr]

I graduated from college without any debt by waitressing on the weekends.

Were you a waitress who became a swampman?

UG debt plus COL can be major, even with a full ride to law school.

[Big Dog]

the government just encouraged banks to take dumb risks without providing any benefits to the consumer.

Actually, the "consumer" got to live in a house (which they could ill afford).

The post that I was responding to was similar (or I misread). But what I read was suggesting that law grads be able to borrow more ("big ticket purchases") even tho they have this debt albatross hanging around their necks.

Bad public policy in my book, just as enabling consumers to purchase homes that they could not conceivably afford.

Debt is debt. (Yes, it may go away in 25 years...)

[NCGuy]

the government just encouraged banks to take dumb risks without providing any benefits to the consumer.

Actually, the "consumer" got to live in a house (which they could ill afford).

The post that I was responding to was similar (or I misread). But what I read was suggesting that law grads be able to borrow more ("big ticket purchases") even tho they have this debt albatross hanging around their necks.

Bad public policy in my book, just as enabling consumers to purchase homes that they could not conceivably afford.

Debt is debt. (Yes, it may go away in 25 years...)

Debt is debt, but educational debt is fundamentally different than any other kind of debt that you can incur. The government has promised that you will only pay a certain amount of your money back on those loans. A credit card company or whatever just gives you a flat monthly payment that does not change with your income. I'm sure that most people who try to buy a house on PAYE/IBR can afford it, with those programs in place. I can see mortgage companies maybe considering it, but cars are financed over such a short period that a major policy reversal within that span is unlikely. However, even if the forgiveness goes away, you're still only paying 10-15% of your income until you die. In that way, the banks could see it as an extra tax.

With the sub-prime crisis, the government did nothing to help the consumer pay back the loans. With student loans, there is at least a guarantee from the government that you won't have to pay more than a certain percentage of your income. And well, the loans originate from the government. Until Fannie and Freddie were taken over, mortgages pretty much only came from private banks. There are too many differences to begin to compare the two.

I don't know enough about finance to debate beyond the surface level, but that is at least my understanding of how it should work. My attempts to argue/understand it would be a

[cinephile]

Have you all seen this: http://educatedrisk.org/analysis/offici ... imitations

It seems to explain a lot of the changes and I found it comforting. Looks like (and I could be reading it wrong) you're grandfathered into your old plan, unless you want to switch to the new PAYE plan. Also, looks like the tax bomb is being removed altogether?

[bouakedojo]

Have you all seen this: http://educatedrisk.org/analysis/offici ... imitations

It seems to explain a lot of the changes and I found it comforting. Looks like (and I could be reading it wrong) you're grandfathered into your old plan, unless you want to switch to the new PAYE plan. Also, looks like the tax bomb is being removed altogether?

But see the latest post from that site: http://educatedrisk.org/news/update-no- ... -proposals

[twenty]

Oh, one thing that's actually super important that nobody's talking about.

http://educatedrisk.org/analysis/obamas ... e-pslf-ibr

Bars payments under non-PAYE repayment plans to count toward PSLF. For example, if a borrower makes normal payments for 3 years and then discovers his/her work qualifies for 1) PAYE and 2) PSLF, then those 3 years do not count towards PSLF. She or he must be enrolled in PAYE in order for those years to count. Borrowers would have to know and decide from the beginning that PSLF is a viable option (and only $57,500 would be forgiven)

Seriously, what the hell? The DoED is going to punish you for paying more?

[A. Nony Mouse]

To be honest, though, I'm not sure how you could only figure out that your job counts for PSLF after three years - it's never struck me as a difficult calculus. And you can sign up for PAYE and if your income is high enough, still be paying the same amount as the 10 year payment plan. As long as this requirement is made clear to graduating students before they have to start repaying, I guess I don't really see it as having a particularly big impact.

[cinephile]

Oh, one thing that's actually super important that nobody's talking about.

http://educatedrisk.org/analysis/obamas ... e-pslf-ibr

Bars payments under non-PAYE repayment plans to count toward PSLF. For example, if a borrower makes normal payments for 3 years and then discovers his/her work qualifies for 1) PAYE and 2) PSLF, then those 3 years do not count towards PSLF. She or he must be enrolled in PAYE in order for those years to count. Borrowers would have to know and decide from the beginning that PSLF is a viable option (and only $57,500 would be forgiven)

Seriously, what the hell? The DoED is going to punish you for paying more?

If your work qualifies for PAYE? But what if you've been paying under IBR because you didn't want to lose the benefits of the full forgiveness?

This is all bullshit. I've been stressing about my financial future since I've heard about this, but now I feel like fuck it. By the time forgiveness comes around, this thing could be changed multiple times. I'm just going to the rely on the principle that debts that can't be repaid won't. And maybe marry a Frenchman and flee the country.

[A. Nony Mouse]

I'm thinking that when it says it bars payments under non-PAYE plans, it's talking about the future where there is no IBR (except for people who are already on it), so all income-based repayments come under PAYE.

[twenty]

The way people will get around it is just enroll in PAYE and continue to make excess payments as if they were on the 10-year track. that loophole will be closed pretty quickly, and the only way you'll get access to PSLF is if you stick to the PAYE payment.

The analogy is that being in a cage (barring non-PAYE payments for PSLF) is survivable, being thrown in the ocean (forcing PAYE folks into Standard to make payments in excess of their monthly PAYE number) is survivable, but being put in a cage and thrown into the ocean is not survivable. So the impact is, if the PAYE rules ever change to where you can not make excess payments under PAYE, anyone relying on being able to bail for Standard with access to PSLF (to make up for years in PAYE) is screwed.

...

There is absolutely no reason for this policy, since it's the dictionary definition of lose-lose. People that would have been on Standard now will opt to pay less through PAYE (because otherwise they lose access to PSLF), and the borrower is now (presumably) in debt for substantially longer.

[Tiago Splitter]

The way people will get around it is just enroll in PAYE and continue to make excess payments as if they were on the 10-year track. that loophole will be closed pretty quickly, and the only way you'll get access to PSLF is if you stick to the PAYE payment.

The analogy is that being in a cage (barring non-PAYE payments for PSLF) is survivable, being thrown in the ocean (forcing PAYE folks into Standard to make payments in excess of their monthly PAYE number) is survivable, but being put in a cage and thrown into the ocean is not survivable. So the impact is, if the PAYE rules ever change to where you can not make excess payments under PAYE, anyone relying on being able to bail for Standard with access to PSLF (to make up for years in PAYE) is screwed.

...

There is absolutely no reason for this policy, since it's the dictionary definition of lose-lose. People that would have been on Standard now will opt to pay less through PAYE (because otherwise they lose access to PSLF), and the borrower is now (presumably) in debt for substantially longer.

Why are you convinced that the government will institute this policy? It seems they'd be happy to have people make more than their required PAYE payments. Or do you think they'll trick people into losing PSLF because people will be afraid of the debt and will opt to pay more?

[twenty]

Why are you convinced that the government will institute this policy? It seems they'd be happy to have people make more than their required PAYE payments. Or do you think they'll trick people into losing PSLF because people will be afraid of the debt and will opt to pay more?

Because the policy itself is pointless when a borrower could enroll in PAYE and continue making payments as if they were on the 10-year. The logic where DoED would be happy to have people making more than their required payments doesn't work (even though it should) because if that were true, they'd want to still allow 10-year folks access to PSLF.

I'm reluctant to say it's part of an elaborate ruse to lure students into financial traps down the road, though. That does seem a bit conspiratorial.

[A. Nony Mouse]

I don't really see the issue, I guess. At least at the moment, you sign up for PAYE if you have a partial financial hardship. If your income increases to the point where you're not in hardship, you're still on PAYE; your payment just goes up to what it would cost under the 10-year plan. I don't see anything about the paragraph you reference that would change that or bar paying excess - it doesn't say you have to pay the amount that PAYE dictates, just that you have to have been signed up for PAYE. If your income is such that before you sign up for a plan, your PAYE payment would be the same as your 10-year-plan payment, I don't think you'd be eligible for PAYE to begin with - you wouldn't have a partial financial hardship, right? Or am I completely missing something? (Very possible.)

[Tiago Splitter]

I don't really see the issue, I guess. At least at the moment, you sign up for PAYE if you have a partial financial hardship. If your income increases to the point where you're not in hardship, you're still on PAYE; your payment just goes up to what it would cost under the 10-year plan. I don't see anything about the paragraph you reference that would change that or bar paying excess - it doesn't say you have to pay the amount that PAYE dictates, just that you have to have been signed up for PAYE. If your income is such that before you sign up for a plan, your PAYE payment would be the same as your 10-year-plan payment, I don't think you'd be eligible for PAYE to begin with - you wouldn't have a partial financial hardship, right? Or am I completely missing something? (Very possible.)

I'm with you. People paying more aren't exploiting any kind of loophole.

[twenty]

I don't really see the issue, I guess. At least at the moment, you sign up for PAYE if you have a partial financial hardship. If your income increases to the point where you're not in hardship, you're still on PAYE; your payment just goes up to what it would cost under the 10-year plan. I don't see anything about the paragraph you reference that would change that or bar paying excess - it doesn't say you have to pay the amount that PAYE dictates, just that you have to have been signed up for PAYE. If your income is such that before you sign up for a plan, your PAYE payment would be the same as your 10-year-plan payment, I don't think you'd be eligible for PAYE to begin with - you wouldn't have a partial financial hardship, right? Or am I completely missing something? (Very possible.)

It's probably my fault for not explaining this well enough.

Suppose you have a borrower named Bill who, after the 2015 deadline, decides to go to law school on a substantial scholarship and will end up with roughly 150k of debt. Bill's PI job only pays 60k/yr, which would mean his PAYE payments are $356 a month. Since he has 150k of debt, his 10-year plan would have been 1.8k/month.

Bill, being reasonably smart, knows that $356 a month isn't even enough to cover the interest and that if he stays on the track he's on, he'll be doing PAYE for 25 years. So instead, Bill starts paying 1.2k/month while enrolled on PAYE. That way, he slowly pays off his loans, and then at year 10, he gets a 57k reduction through PSLF. This way, he'll have all his loans paid off around year 14 or so.

Now, as it stands, that will work out fairly well for Bill, since Bill doesn't need to ditch PAYE and go on a 10-year repayment plan in order to pay more. If Bill wants to, he can enroll in PAYE and just make 1.8k/month payments regardless.

The problem, of course, is that the language in the new policy says folks that are not enrolled in PAYE do not get access to PSLF. It will become very quickly clear that people are "on" PAYE, but are paying significantly more than their monthly PAYE payment. If the rules change (which can happen very easily, because the guarantee of early repayment is nowhere to be found in the MPN) and keep Bill from making payments larger than his PAYE payment while enrolled in PAYE, Bill's in trouble.

Now Bill's in year six of his repayment. The rules change on him, and he is not allowed to stay on PAYE and make larger payments. He has the option to go to 10-year, of course, but then he loses access to PSLF, even if he stays in his PI job for four more years. Alternatively, he can go back to his PAYE payment, but then the interest on his loan will capitalize.

Does that make sense? So it's not this policy that's immediately harmful, it would just be so easy to circumvent that it would lock borrowers in a really bad place if/when the rules inevitably changed to keep borrowers from enrolling in PAYE just for the PSLF at year 10. That combination, then, would be kind of rough.

Tiago's point, which makes sense, is "Why would the DoED ever institute a policy that requires borrowers pay less to them?" Valid question -- one that I would normally assume would check back against change, except for the fact that this very policy pushes borrowers towards PAYE by denying them access to PSLF through 10-year.

[A. Nony Mouse]

Thanks for the explanation. I get the concern, but there isn't anything in the paragraph you quoted that says they're going to change the rules to prevent overpayments, right? I guess I'm with Tiago, and don't really see why such a change would be made. I mean, I get requiring people to be on PAYE to qualify for PSLF, since the point of PSLF is to address the lower salaries of public sector jobs, and if you don't have enough of a financial hardship to qualify for PAYE, you probably don't have the salary issue. But I guess I still don't see the incentive to limit overpayments on PAYE.

[linkx13]

Question about how changes would only apply to borrowers after July 1, 2015 (hypothetically if it works out that way).

Does this mean that as long as you took your first law school loan before 2015 (i.e. those of us starting this year), you are eligible for the uncapped PSLF? Or does it somehow mean only your first year loans would somehow be eligible?

[mt2165]

Question about how changes would only apply to borrowers after July 1, 2015 (hypothetically if it works out that way).

Does this mean that as long as you took your first law school loan before 2015 (i.e. those of us starting this year), you are eligible for the uncapped PSLF? Or does it somehow mean only your first year loans would somehow be eligible?

It seems to me to be retroactively applicable, which means no you'll be held under the cap...

[linkx13]

Question about how changes would only apply to borrowers after July 1, 2015 (hypothetically if it works out that way).

Does this mean that as long as you took your first law school loan before 2015 (i.e. those of us starting this year), you are eligible for the uncapped PSLF? Or does it somehow mean only your first year loans would somehow be eligible?

It seems to me to be retroactively applicable, which means no you'll be held under the cap...

See the first item: http://educatedrisk.org/analysis/offici ... imitations

It does not seem to be retroactive.

[whippersnappery]

How much would cuts to PSLF affect people doing LRAP/LIPP from HYS? My understanding is that they're totally independent from the government programs?

[linkx13]

How much would cuts to PSLF affect people doing LRAP/LIPP from HYS? My understanding is that they're totally independent from the government programs?

They are. Cornell has a similar set up as well, though I believe the contributions are higher.

[twenty]

Columbia still allows access to their old program as well, where you pay a third of your income over 50k.

[bouakedojo]

http://educatedrisk.org/analysis/ed-fur ... paye-terms