by Repayable | Jan 8, 2018 | #Millenniallife, Advocacy, Loan Forgiveness
Today’s post provides insight on a few key pieces of the PROSPER Act introduced in the House in late 2017. Estimated read time ~5 min.
The PROSPER Act, short for Promoting Real Opportunity, Success and Prosperity through Education Reform, was introduced by Rep. Virginia Foxx (R-NC), chairwoman of the House Committee on Education and the Workforce, and Rep. Brett Guthrie (R-KY), chairman of the Higher Education and Workforce Development subcommittee late in 2017.
PROSPER is designed as a reform to the current system of higher education funding. Currently the law of the land is the Higher Education Act which has been in place since 1965. It’s fair to say that the landscape of higher education has changed significantly since then.
The Best of PROSPER:
Meaningful information for borrowers to make financially driven decisions about college.
No one wants to end up with a degree that assassinates their financial future. Completion rate, average debt of borrowers, and the average salary of graduates at 5 and 10 years for every college will give borrowers objective data to compare across different degrees and different universities. Ideally there would be salary information for graduates 1 year after graduation and job placement rates in the chosen field so borrowers could also assess how quickly they would get a job after graduation and if there are enough jobs to go around.
Simplified loan options.
There are six different types of federal loans under the current system. I definitely see the need to simplify them. PROSPER proposes a common sense split of one loan for undergraduates, one for graduate students, and one for parents. They call it ONE Loan although there are in fact three loans.
The Worst of PROSPER:
Elimination of a time-based loan forgiveness option.
Essentially PROSPER would protect borrowers from negative amortization (an increase in the principal balance of a loan caused by making payments that fail to cover the interest due) by limiting borrowers to paying no more than they would have under a 10 year standard repayment plan. The problem? You still have to pay off the entire principal of the loan. So if your education cost more than the income it provided you after college you’re stuck paying that loan pretty much indefinitely.
Why is this so problematic? With other types of debt, such as credit card debt, if you get in over your head that debt can be discharged through Chapter 7 bankruptcy. Student loan debt, not so much. A borrower has to die or become permanently disabled for federal loans to be discharged. So if a borrower gets in over their head with student loans under PROSPER… your debt will follow you around for-ev-er.
Graduate student loan changes.
PROSPER would set a cap on the loan amount available to graduate students without taking into account the cost of attendance. In addition PROSPER eliminates graduate students eligibility to participate in work study. Coupled together, these changes could limit the ability of an individual graduate student to financially support their graduate education.
The Things PROSPER Could Do Better:
Offer a time-based forgiveness option.
Even with responsible borrowing there is not enough readily accessible data for a student to accurately decide how much their degree is worth. Want to know the average debt of a graduate in your chosen field of study at your institute? Good luck finding that. Want to know job placement rate? You can probably find that. Want to know the average starting salary of graduates from your particular program? That information isn’t there. Add that to repeated tuition hikes and a system designed to keep students spending and it’s amazing anyone gets out without torching their future finances.
In addition to the majority of responsible borrowers the fact still remains that federal student loans give 18 year old borrowers access to tens of thousands of dollars a year so they can choose a career for the rest of their lives… give me a break! The pre-frontal cortex is the part of the brain responsible for planning and complex decision-making like anticipating long-term consequences. This part of the brain isn’t even fully developed until around age 25. So a borrower at age 18 is supposed to choose something they want to do forever and borrow responsibly. We shouldn’t be holding this decision making over someone’s head for a never-ending period of time.
Loan forgiveness is not a get-out-of-jail free card, it’s the responsible thing to do in a system of higher education that’s becoming increasingly treacherous to navigate.
Offer stronger incentives for colleges to control costs and demonstrate outcomes.
PROSPER could directly tie a college’s access to federal funding based on borrower outcomes. If specific institutions and programs of study fail to demonstrate appropriate debt-to-income ratios, the government could lower funding to those institutions.
Why am I proposing taking money away? Because this prevents predatory programs from racking up debt for borrowers without keeping the promise of higher income through higher education. This steers borrowers away from these types of programs because they won’t be able to access funding. Right now college tuition is on an indefinite upward trend. At some point all degrees will be priced out of affordability. Tying federal funding to something like a debt-income-ratio motivates colleges to lower costs to reduce the debt portion of the ratio. Right now there is no motivation for colleges to lower costs.
A Controversial Stance on Public Service Loan Forgiveness (PSLF):
I’m not opposed to the elimination of PSLF in the long term.
A large percentage of borrowers attracted to this program are not who PSLF was intended for. PSLF has attracted many high income high debt borrowers with the means to repay their loans regardless of a loan forgiveness option. Borrowers like myself, a pharmacist, can save tens of thousands through PSLF but can afford, albeit with modest additional financial pressure, to repay the full balance of our loans without loan forgiveness. Loan forgiveness options encourage existing professional colleges (Pharmacy, Law, Medicine, etc) to continue to increase tuition. The lucrative tuition encourages for-profit institutions to open up which floods the job market with new graduates and drives down wages despite increasing the price tag of education.
I do think PSLF is the right choice for a specific subset of borrowers whose public sector work has mediocre pay yet requires extensive education. To meet the needs of those individuals while preventing wasteful spending, PSLF needs stricter criteria so it can be applied only to borrowers who could not afford to work in the public sector without PSLF. Without limiting criteria I’m in favor of it’s elimination for the creation of a forgiveness program that reaches borrowers in true financial need.
I do think existing borrowers should be grandfathered in if they have made a reasonable number of qualifying payments on their loans. If we fail to grandfather those borrowers in they will get slapped with additional interest that has been accruing on their income-driven repayment plan because they made a decision based on the promise of loan forgiveness that wasn’t kept.
What else is in PROSPER?
There are a lot of updates in PROSPER that weren’t the focus of this post. If you want to learn more about what’s in PROSPER check out this post on US News and the PROSPER Act summary put together by the House.
What do you think?
I would love to hear your thoughts on this topic share them in the comments below or on the Repayable Facebook Page.
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by Repayable | Jan 2, 2018 | Ask Jeni, Loan Forgiveness
Ask Jeni is brought to you in partnership with tuition.io, a company dedicated to helping the best companies free their employees from student loan debt.
As someone who has graduate school loans, I have been told that – based on my current salary and opting to pay back the loan via income based repayment – I will not be able to pay back student loan debt in my lifetime. What are my best options?
The answer to this questions depends on a couple of things. Do you have federal or private student loans? Are you looking to pay as little as possible each month?
If you only have federal student loans, including a Direct Consolidation Loan, an income-driven repayment plan (a plan where your monthly payment is generally 10-20% of discretionary income) can be a good strategy if your goal is to pay as little as possible each month. An income-based repayment plan will afford you loan forgiveness after 20-25 years depending on when you originally took out those loans.
The answer is a little less clear if you have a mix of federal and private student loans. Your private student loans aren’t going to be forgiven so you should target any extra payments to those first. Your remaining federal loans are suited to an income-driven repayment plan.
If you’re unable to afford your loans and don’t want to make seemingly endless payments the fastest way to get out is through an income-driven repayment plan. It will still be a long haul, 20-25 years, but it won’t be a lifetime.
Currently, any loans forgiven under the income-driven repayment plans are taxable as income. Loans forgiven under Public Service Loan Forgiveness (PSLF) are not taxable.
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by Repayable | Dec 4, 2017 | #Millenniallife, Loan Forgiveness, Money Matters
Photo by Glenn Carstens-Peters on Unsplash
Some repayers are in deep student loan debt and forgiveness provides the only light at the end of a very long repayment tunnel. Today’s post is going to lay out the right things to do and the things you want to avoid doing when you’re trying to get Public Service Loan Forgiveness (PSLF).
If you’re after PSLF success this article is for you. Estimated read time 4 minutes.
Do
- Know the specifics of PSLF. You must maintain full time employment by an eligible employer and make 120 payments on eligible loans for forgiveness.
- Submit the Employment Certification form annually and when you change employers.
- Keep making your monthly payments under an income-driven repayment plan and keep your loan in good standing.
Don’t
- Consolidate your Direct Loans if you’ve been making payments for awhile. If you consolidate, the 120 payments will start all over with your new Direct Consolidated Loan.
- Refinance your loans. Federal student loans are the only type of loans that qualify for PSLF.
- Stop working for an eligible employer until you’ve received loan forgiveness, even if you’ve made 120 payments. If you move to a private sector job after meeting the PSLF eligibility requirements but before you apply for loan forgiveness, you will not be eligible for forgiveness since you must be working for a qualifying employer at the time you apply for and receive forgiveness.
Two important steps to take right now.
- Submit your Employment Certification form. If you don’t hear back from the Department of Education or Federal Loan Servicing after a month call FedLoan Servicing at 1-855-265-4038
- Figure out how many qualifying payments you have made and how many you have left to go. If you haven’t submitted an Employer Certification form yet this you can count the number of payments you’ve made since your grace period ended and subtract from 120. If you’ve already submitted your Employer Certification form you can find out how many qualifying payments you’ve made by logging in to your FedLoan account and viewing your loan details or by looking on your most recent billing statement.
Resources
Employment Certification Form
Public Service Loan Forgiveness Basics
Public Service Loan Forgiveness FAQ
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by Repayable | Nov 20, 2017 | #Millenniallife, Advocacy, Loan Forgiveness
Student loan forgiveness is one hotly debated topic. The fact that we have student loan debt at all is probably the only topic debated more.
Today’s post is going to share my personal experience and why I didn’t choose Public Service Loan Forgiveness (PSLF) despite the fact I have eligible employment and it would have saved me tens of thousands of dollars.
This isn’t to say that you have to share my mindset or that you should feel guilty about making the financial choice that’s best for you. This post is here to share a perspective you might not hear from anyone else through my own experience. It’s not about getting you to make a certain choice. It’s about helping you see there are countless alternatives to the standard school of thought so you can give yourself permission to pursue the one that fits your financial needs and moral compass.
$128,000 in Federal Loans at 6.8% Interest
I graduated in 2013 with my Pharm.D and went straight to residency. I made the decision to make income based monthly payments of around $360 per month because there was no way at $47,000/year I could afford the 10 year payments of almost $1,500 per month. After finishing residency and despite paying $6,000 toward my student loans my amount went up to $132,000 because I couldn’t keep up with interest.
It was Time to Go For It
After becoming a salaried pharmacist I had a choice to make. Continue in my income-based repayment plan and wait nine more years for Public Service Loan forgiveness or take matters into my own hands, control my destiny, and decimate my debt aggressively.
Here are the financial deets.
You can do the math, it’s going to cost me $60,000 more if I pay my loans off myself in 10 years instead of waiting for forgiveness. So why the hell would I make this choice?
I Believe PSLF Isn’t Meant for Me
Here’s the thing, whether I pay $1,100 a month (my income-based payment) or $1,500 a month I can still live the life I want to. I’m incredibly fortunate and have a job that fairly compensates me and sets me up for financial success despite my six figure debt.
There are a lot of people who aren’t so fortunate. Think about a social worker who has $57,500 of student loans for their masters degree so they can help the most vulnerable patients in the hospital obtain affordable access to medical equipment, home care, etc. This social worker makes $50,000 annually. They will pay about $79,200 in a standard 10 year repayment plan and around $48,000 under PSLF that’s a $31,000 savings.
Because the social worker makes less than I do as a pharmacist, a larger percentage of their monthly income goes to necessary living expenses. Their forgiven dollar amount is less than mine would be and the savings can ease the real impact student loan debt has on their every day life. More good is done in their life by spending less money.
If I Take PSLF, if Comes at a Cost to Someone Else
The fact of the matter is, when PSLF was designed they had lower debt, lower income borrowers in mind. Unfortunately they attracted a lot of high-debt high-income borrowers like myself and many other pharmacists, physicians, and high income folks working at non-profit institutions. That means there’s not enough funding to go around.
I Care About My Fellow Borrowers, Not Tax Payers
We all pay our fair share of taxes here in the middle class, and if my tax money can be used for something I believe in I don’t mind paying taxes. That’s why I chose not to utilize PSLF because I didn’t need it, I could afford to pay my loans with marginal financial sacrifice. I want this money to be there for people who need it. If I use it, it won’t be.
What About You?
What do you think about the idea of “saving” loan forgiveness for someone who needs it? What do you think about the idea of borrowers who can afford to pay their loans under standard repayment taking advantage of the savings offered via PSLF? Let me know in the comments below or on the Repayable Facebook Page.
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