proposition for paying off student loans

[Guest Gnome Chomsky]

I just want to float this idea out there. I was reading about student loan repayment options and there are a few of them that sparked my interest. There's one I believe is called the Pay As You Earn, which is an accelerated version of the income-based repayment plan. However, you have to qualify for it by showing a "partial financial hardship", which I believe works like this: 

 

_______________________________________________

 

If 10% of your income is less than the Standard Repayment Plan, then you are able to pay 10% of your income for 10 years and the loan will be forgiven.

 

The Standard Repayment works like this: Let's say your loan (after interest is factored in) is $100,000. The number would be divided into 12 months a year for 10 years. So a $100,000 loan would be $10,000 a year for 10 years. Then $900-something a month. 

 

So if this amount is greater than 10% of your income, you qualify for Pay As You Earn. You'd basically have to make $120,000 a year in this hypothetical situation not to qualify. 

 

So, as you see, the people who are most likely to qualify are people who either a ) people with small loans who have very low-paying jobs, or  b ) people with large loans who have well-paying jobs. Since we're all striving to not have a low-paying job, it seems like the higher likelihood of qualifying if you have a good job is if your loan is through the roof. 

 

Also, the year the loan is forgiven, you'll have to pay taxes on the amount that was forgiven. So basically, for most people who qualify this, you'll likely only pay off a portion of the interest and the total of the loan will be forgiven. For example, if your original loan was $80,000 and interest over the years accumulated to $50,000, you might only end up paying a total of $40,000 and have the other $90,000 forgiven. 

 

_______________________________________________

 

 

So, here's where my proposition comes. It seems like most people are afraid to take out excessive loans because they don't want to get stuck paying them back. It seems to me like you're better off either taking out very little in loans or a hell of a lot. You'll probably end up paying back less if you take out, say, $150,000 than you would if you only took out $50,000. 

 

Just an idea. So does anyone have experience with this? Or has anyone sat there one night over a bottle of red wine and tried to weigh their options for the future? I've heard people make some pretty extreme decisions in order to pay off loans. I've had friends who gave up high-paying jobs to work 5 years in a crime-ridden high school because they were told their loan would be forgiven. 

 

It seems to me that if you're nearing that dollar amount where it's starting to seem unlikely that you'll ever be able to pay it off, you should consider taking out more loans in order to qualify for Pay As You Earn. Might be a crazy idea but the math seems to work the way I factored everything in. Perhaps someone has more insight on the way these things work. Maybe I'm missing something here. 

 

_______________________________________________

 

 

Edit: I may be wrong about my definition of a partial financial hardship (but it still doesn't change my premise). The financial aid website's definition of a partial financial hardship for Pay As You Earn is "A circumstance in which the annual amount due on your loans, as calculated under a 10-year Standard Repayment Plan, exceeds 10 percent of the difference between your adjusted gross income (AGI) and 150 percent of the poverty line for your family size in the state where you live."

 

What I think that means is this (we can cancel out the division of the 10 years and the 10 percent difference between your AGI and poverty line): If your AGI minus 150% of the poverty line is less than your loan size, you qualify. So if your loan is, say $100,000, your AGI would probably need to be $150,000 or higher in order to not qualify. 

Edited July 1, 2014 by Gnome Chomsky

[hj2012]

From what I understand, the reason this doesn't always work out is that this only applies to certain federal loans, not private loans. Most of my friends who are really struggling under the burden of students loans are doing so because they took out private loans (with ABSURD interest rates) when they were stupid 18-year-olds, and now do not have the income to support the burden of their loans.

 

However, others with more knowledge should chime in.

[Guest Gnome Chomsky]

From what I understand, the reason this doesn't always work out is that this only applies to certain federal loans, not private loans. Most of my friends who are really struggling under the burden of students loans are doing so because they took out private loans (with ABSURD interest rates) when they were stupid 18-year-olds, and now do not have the income to support the burden of their loans.

 

However, others with more knowledge should chime in.

Thanks for mentioning that. I totally forgot to mention that in my post. Yes, hj2012 is right. The Pay As You Earn plan only applies to federal student loans, not private loans or the Plus loan (I think that's what it's called). Good point. 

[hj2012]

Another thing to keep in mind is that federal loan limits are (relatively) low, so students probably do not have 100K in loans that would be eligible to be discharged under the Pay As You Earn system. 

 

Seeing some of my friends and acquaintances suffer under the ridiculous burden of student debt makes me question if private schools - even ivy league caliber -- are ever worth sticker price. One of my best friends from high school would probably be an amazing PhD program following her dream if she had not racked up nearly 200K in debt to graduate from Columbia University. Instead, she's stuck in a soul-sucking job, fighting to stay on top of her loans. We've talked multiple times about how she wishes she just attended a state university, as that would have given her so many more opportunities to do what she wanted with her life. 

 

It's tough.

[Guest Gnome Chomsky]

Another thing to keep in mind is that federal loan limits are (relatively) low, so students probably do not have 100K in loans that would be eligible to be discharged under the Pay As You Earn system. 

 

Seeing some of my friends and acquaintances suffer under the ridiculous burden of student debt makes me question if private schools - even ivy league caliber -- are ever worth sticker price. One of my best friends from high school would probably be an amazing PhD program following her dream if she had not racked up nearly 200K in debt to graduate from Columbia University. Instead, she's stuck in a soul-sucking job, fighting to stay on top of her loans. We've talked multiple times about how she wishes she just attended a state university, as that would have given her so many more opportunities to do what she wanted with her life. 

 

It's tough.

Well, it's not that hard if you take out the maximum every year you're in college. I know people who went $70,000 in debt on Stafford loans (combined with interest) in undergrad alone. According to the financial aid website, the independent student undergrad limit is $57,000 and the grad student limit is $138,000. So that could potentially be $200,000 not including interest. 

[themmases]

Sorry, this is a bad idea. We're talking about the same political system that makes young people mortgage their futures by taking on this kind of debt in the first place, and has made that debt non-dischargeable in bankruptcy. The only changes to student loans that have happened in the last few years, good or bad, have been fraught with unintended consequences, a lack of price controls, and a complete lack of requirements for anyone but students to pay their fair share. Grad loans became non-subsidized recently. It's insane to think that PAYE and similar programs will still exist in their current form 10+ years from now, and that the taxes on the forgiven portion-- which no one even seems to fully understand right now-- will still work out the same way. Even if they did, 10 years is a best-case scenario. Many of these programs involve more like 20 years of payments that don't even touch the loan principle, during the years that most people would be using that money to start a life. 10% of disposable income is not nothing in the economy we've inherited.

 

No one should borrow more than they have reason to believe they could personally pay back under their own power. It's unfair, but the ability to take on unlimited educational debt is not "access". People who'd like to see real educational access return in their lifetimes should continue to call their elected representatives and give 'em hell.

 

 

 

...::deep breath::

[hj2012]

Well, it's not that hard if you take out the maximum every year you're in college. I know people who went $70,000 in debt on Stafford loans (combined with interest) in undergrad alone. According to the financial aid website, the independent student undergrad limit is $57,000 and the grad student limit is $138,000. So that could potentially be $200,000 not including interest. 

 

I see. For whatever reason, I was just thinking about undergrad loans. Regardless, I still think it's best to be cautious about this plan for the reasons themmases mentioned. I really wouldn't trust the government on this issue.

[spectastic]

i have charles koch's office phone on my outlook. you want it?

 

 

just be like "hey, it's dave. listen bro. I need some money, $100,000. you can't ask about it, nobody can know. but I own some people, and it has to be on the down low."

Edited July 2, 2014 by spectastic

[spunky]

 if she had not racked up nearly 200K in debt to graduate from Columbia University.

 

are you for REAL!?

 

how does she expect to ever have a future owing that kind of money?!

[hj2012]

are you for REAL!?

 

how does she expect to ever have a future owing that kind of money?!

 

Yep, I'm for real. It was a thing at my high school for kids to feel like they were "too good" for our local state schools, and would therefore prefer to pay ridiculous sums of money to go a fancy private school. I think many of the parents were so proud of their child for getting into said name-brand school, and they didn't really think about the consequences. I graduated from high school in 2006, when the economy seemed great, but by the time I graduated from college, the economy was REALLY bad, so even qualified students had a hard time getting jobs that would help them stay on top of their loans.

 

I also have friends who will probably have about that much debt to graduate from no-name law schools....which is insane.

[spunky]

Yep, I'm for real. It was a thing at my high school for kids to feel like they were "too good" for our local state schools, and would therefore prefer to pay ridiculous sums of money to go a fancy private school. I think many of the parents were so proud of their child for getting into said name-brand school, and they didn't really think about the consequences. I graduated from high school in 2006, when the economy seemed great, but by the time I graduated from college, the economy was REALLY bad, so even qualified students had a hard time getting jobs that would help them stay on top of their loans.

 

I also have friends who will probably have about that much debt to graduate from no-name law schools....which is insane.

 

oh god... the horror. i'm just extra sensitive to this stuff right now because i'm wrapping up  a summer project crunching numbers (yeah, i crunch numbers during the summer. that's my version of 'fun') relating student loans to underemployment (basically a numbers/stats-backed version of saying 'if you graduate with a student loan, you'll probably get the first crappy job you can find, and you'll probably get stuck with it because you need to pay up) and things are dismal. like you know the whole situation is pretty bad, but you just get to see how bad it is. 

 

almost makes me want to weep for where our generation's going. 

[spectastic]

banned?

[spunky]

banned?

 

looks like it. the whole irish flag and ivory coast comment on the world cup predictions thread might have been the straw that broke the camel's back. 

[fuzzylogician]

banned?

 

looks like it. the whole irish flag and ivory coast comment on the world cup predictions thread might have been the straw that broke the camel's back. 

 

Gnome asked to have his account deactivated. He was not banned.

[Queen of Kale]

Not to derail an already derailed conversation - but was anyone else disappointed when they started reading the thread and realized the topic was not actually "prostitution for paying off student loans"?  I thought I'd entered a mystical intersecting realm between GradCafe and SavageLove...

[Vene]

Not to derail an already derailed conversation - but was anyone else disappointed when they started reading the thread and realized the topic was not actually "prostitution for paying off student loans"? I thought I'd entered a mystical intersecting realm between GradCafe and SavageLove...

I am positive that a lot of people have done just that to pay off their loans.