Bipartisan Bill that would end PAYE and PSLF Forum

[Nomo]

http://www.rubio.senate.gov/public/inde ... 9d9a1ff26a

U.S. Senators Marco Rubio (R-FL) and Mark R. Warner (D-VA) introduced the Dynamic Student Loan Repayment Act a couple days ago. It would automatically have all borrowers pay 10% of their their income over $10,000. Forgiveness comes at 30 years instead of 20 years (or 10 for those in public interest). There does not appear to be a public interest exception. I have not figured out if current borrowers can be grandfathered into the current PAYE, IBR, and PSLF plans.

[A. Nony Mouse]

Does it actually say anything about ending PSLF? I couldn't find anything about that (but I only skimmed the legislation itself because, well, legislation). PSLF isn't an income-based repayment plan, so it's separate from IBR/PAYE, which is what this seems to address.

[Nomo]

Does it actually say anything about ending PSLF? I couldn't find anything about that (but I only skimmed the legislation itself because, well, legislation). PSLF isn't an income-based repayment plan, so it's separate from IBR/PAYE, which is what this seems to address.

I read that somewhere, but I haven't found it in the bill yet. But I've only scanned the bill and I haven't taken the time to figure out the effect of the changes this bill would specifically to make to a number of other laws.

[09042014]

does it fix the tax bomb.

[twenty]

Notice the huge exception:

A student who, as of July 1, 2015, has an outstanding balance of principal or interest owing on any loan made, insured, or guaranteed under part B or this part may continue to be eligible to borrow a loan under this part, except for a Federal Direct Stafford Loan, in accordance with subparagraph until June 30, 2019.

That means CO17 (and before) is totally fine and even CO18 is fine if they take out a small loan for a community college class before July 1, 2015.

This does nothing to PSLF/PAYE except restrict it from future PI-interested folks. Nothing retroactive here.

[Holly Golightly]

So this would completely eliminate PSLF for future grads?

Also

does it fix the tax bomb.

[LSL]

Haven't read the bill, but here are some articles. Obviously, the credibility isn't the highest on these, but maybe they'll help point people to some of the (possible) pros and cons for those who are piecing through it.

Slate article:

All federal loan borrowers would be enrolled in an income-based program where they paid 10 percent of their earnings each month, with a $10,000 annual exemption. Meanwhile, the government would collect the money directly from workers’ paychecks, just like tax withholding. One potentially controversial part: It would forgive up to $57,500 worth of loans after 20 years, but anything above that amount wouldn’t be forgiven for 30 years. (The current Pay as You Earn repayment program forgives all debts after two decades.) But borrowers who don’t like the income-based option could opt out and set their own payment timetable.

Above the Law:

The plan is terrible for the poorest students. Currently, the federal income-based repayment program, called Pay as You Earn or PAYE, also requires 10% of discretionary income, but it calculates "discretionary" at 150% of the poverty line. The Rubio/Warner plan kicks in at $10,000... which is a lot less than 150% of the poverty line.

Also under PAYE, if you have more than $57,500 of debt after 20 years of repayment, PAYE forgives your loan. Under Dynamic Repayment, that goal post is moved to 30 years out. I guess the upside is that under Dynamic Repayment, there's a better chance that you'll die still owing money.

Another plus:

The key feature of the plan is that all federal borrowers would be automatically enrolled in it. This plan would become the default. And the money would be deducted straight from your paycheck, like taxes are now.

Right now, there are a lot of people eligible for PAYE who don't even know it. There are still more who can't figure out how to enroll. Again, these people are financially stupid. (Disclosure: I was once one of critically dumb.) But nobody should default on their loans just because they couldn't figure out how to sign up to repay them.

Didn't see anything about the tax bomb.