Student Loans - Pay As You Earn

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
rasputin
Posts: 165
Joined: Tue Mar 29, 2011 6:40 pm

Student Loans - Pay As You Earn

Postby rasputin » Mon Nov 12, 2012 10:32 pm

I'm interested in the Pay As You Earn Program to repay my grad school loans. I contacted my loan servicer, Great Lakes, and was given the following information which i'd like to verify -

- The Pay As You Earn program is currently on hold and they're not sure when it will be active.

- You can apply for Income Based Repayment for now and then apply for Pay As You Earn when it's available.

- Your payments for both IBR and Pay As You Earn are based on the most recent income tax filing. For instance, last year I was a student and made only $1,000 (AGI) so that will be used for this year's payment schedule even though i'm employed this year and earn much more.

---

does anyone have detailed knowledge of these issues?

thanks

jimbojones
Posts: 97
Joined: Sat Feb 18, 2012 7:53 pm

Re: Student Loans - Pay As You Earn

Postby jimbojones » Sat Dec 08, 2012 10:40 am

This website has most of the details. It looks like the program will take effect some time during December.

http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn

The big winners are folks with huge student loan balances.

Grt2bOutdoors
Posts: 12670
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Student Loans - Pay As You Earn

Postby Grt2bOutdoors » Sat Dec 08, 2012 10:42 am

Doesn't interest accrue on unpaid balances? :confused
"Luck is not a strategy" Asking Portfolio Questions

jimbojones
Posts: 97
Joined: Sat Feb 18, 2012 7:53 pm

Re: Student Loans - Pay As You Earn

Postby jimbojones » Sat Dec 08, 2012 10:53 am

Grt2bOutdoors wrote:Doesn't interest accrue on unpaid balances? :confused


Yes, yes it does. An example:

$150,000 student loan debt
$100,000 AGI
3 Family Size
7.15% Average Interest Rate

$595 per month is the Pay As You Earn student loan payment, as calculated using the website above. If you make that $595 payment for 20 years, the remaining loan balance would be forgiven. With this example, the remaining loan balance is $307,257. The forgiveness would count as taxable income.

HopeToGolf
Posts: 151
Joined: Fri Dec 24, 2010 4:04 pm

Re: Student Loans - Pay As You Earn

Postby HopeToGolf » Sat Dec 08, 2012 11:43 am

Wow what a great deal for colleges. They get to keep prices rising without correlation to earnings power and this makes it much more attractive for students to take on debt without worrying about paying it all back.

I guess the correction in higher education pricing will continue to be on hold a while.

User avatar
steadyeddy
Posts: 511
Joined: Tue Mar 31, 2009 5:01 pm
Location: The Alps of the Midwest

Re: Student Loans - Pay As You Earn

Postby steadyeddy » Sat Dec 08, 2012 12:38 pm

HopeToGolf wrote:Wow what a great deal for colleges. They get to keep prices rising without correlation to earnings power and this makes it much more attractive for students to take on debt without worrying about paying it all back.

I guess the correction in higher education pricing will continue to be on hold a while.



FINALLY! The elderly have been borrowing from the next generation for too long. It's about time we let young people mortgage this nation's future for themselves! :oops:

fcox85
Posts: 112
Joined: Fri Nov 16, 2012 4:13 pm

Re: Student Loans - Pay As You Earn

Postby fcox85 » Sat Dec 08, 2012 12:53 pm

jimbojones wrote:
Grt2bOutdoors wrote:Doesn't interest accrue on unpaid balances? :confused


Yes, yes it does. An example:

$150,000 student loan debt
$100,000 AGI
3 Family Size
7.15% Average Interest Rate

$595 per month is the Pay As You Earn student loan payment, as calculated using the website above. If you make that $595 payment for 20 years, the remaining loan balance would be forgiven. With this example, the remaining loan balance is $307,257. The forgiveness would count as taxable income.


Is there a source that you've read which outlines that the forgiveness counts as income? I am aware that this is true with other forms of debt, but it seems that it would undercut the point of the forgiveness program (especially the public service forgiveness) to the saddle the already debt laden payor (who presumably makes far less than their debt burden) with a massive tax bill. Is there not a legislative exception for the student loan forgiveness program?

jimbojones
Posts: 97
Joined: Sat Feb 18, 2012 7:53 pm

Re: Student Loans - Pay As You Earn

Postby jimbojones » Sat Dec 08, 2012 1:01 pm

fcox85 wrote:
jimbojones wrote:
Grt2bOutdoors wrote:Doesn't interest accrue on unpaid balances? :confused


Yes, yes it does. An example:

$150,000 student loan debt
$100,000 AGI
3 Family Size
7.15% Average Interest Rate

$595 per month is the Pay As You Earn student loan payment, as calculated using the website above. If you make that $595 payment for 20 years, the remaining loan balance would be forgiven. With this example, the remaining loan balance is $307,257. The forgiveness would count as taxable income.


Is there a source that you've read which outlines that the forgiveness counts as income? I am aware that this is true with other forms of debt, but it seems that it would undercut the point of the forgiveness program (especially the public service forgiveness) to the saddle the already debt laden payor (who presumably makes far less than their debt burden) with a massive tax bill. Is there not a legislative exception for the student loan forgiveness program?


From the linked website (studentaid.ed.gov), under the "Disadvantages" section:

You may have to pay taxes on any loan amount that is forgiven after 20 years.

fcox85
Posts: 112
Joined: Fri Nov 16, 2012 4:13 pm

Re: Student Loans - Pay As You Earn

Postby fcox85 » Sat Dec 08, 2012 5:18 pm

Jimbo,

Thanks for pointing me to that. Missed that on my first look. Talk about a pretty large potential trap for the unwary.

Tabulator
Posts: 214
Joined: Sat Mar 31, 2012 4:03 pm

Re: Student Loans - Pay As You Earn

Postby Tabulator » Fri Apr 05, 2013 1:47 pm

Which is better -- IBR or Pay As You Earn -- for people with a moderately large loan balance?

MnD
Posts: 2520
Joined: Mon Jan 14, 2008 12:41 pm

Re: Student Loans - Pay As You Earn

Postby MnD » Fri Apr 05, 2013 2:17 pm

HopeToGolf wrote:Wow what a great deal for colleges. They get to keep prices rising without correlation to earnings power and this makes it much more attractive for students to take on debt without worrying about paying it all back.

I guess the correction in higher education pricing will continue to be on hold a while.


Families and students paying for college without massive federal loan debt, or students taking out loans to fund difficult majors with good earnings potential is for suckers apparently.


Return to “Personal Finance (Not Investing)”

Who is online

Users browsing this forum: auntie, Cindyjrn, gkaplan, jbuzolich, mhalley, Munir, sscritic, theunknowntech, vachica and 113 guests