Ship of Fools: off-the-wall question about student loans

Thread: off-the-wall question about student loans Board: Oblivion / Ship of Fools.

To visit this thread, use this URL:
http://forum.ship-of-fools.com/cgi-bin/ultimatebb.cgi?ubb=get_topic;f=70;t=025169

Posted by Josephine (# 3899) on :

It's my understanding that debt collectors sometimes buy private student loans at pennies on the dollar, and that allows them to collect the full amount.

Is that true?

If it is, is there anything to prevent a charitable organization (or a private citizen, or anyone else) from buying student loans and simply forgiving them?

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Josephine:
It's my understanding that debt collectors sometimes buy private student loans at pennies on the dollar, and that allows them to collect the full amount.

Is that true?

This is emphatically not the case in the UK.

quote:
If it is, is there anything to prevent a charitable organization (or a private citizen, or anyone else) from buying student loans and simply forgiving them?

I don't see why not. Nice idea [Smile]

Posted by Crœsos (# 238) on :

quote:
Originally posted by Josephine:
It's my understanding that debt collectors sometimes buy private student loans at pennies on the dollar, and that allows them to collect the full amount.

Is that true?

Most privately originated debt can be traded in this way. (Note that most student loans in the U.S. are now government issued, rather than privately issued.) A more accurate way to describe this is that debt collectors sometimes buy private student loans at pennies on the dollar in the hope that they'll be more successful in collecting the full amount than the loan originator. As with most debt collection, it's a speculative enterprise.

quote:
Originally posted by Josephine:
If it is, is there anything to prevent a charitable organization (or a private citizen, or anyone else) from buying student loans and simply forgiving them?

The only thing stopping them is convincing their donors that relatively privileged college graduates are the best recipients of charitable aid.

Posted by Beeswax Altar (# 11644) on :

Yes
No

Posted by Justinian (# 5357) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Josephine:
It's my understanding that debt collectors sometimes buy private student loans at pennies on the dollar, and that allows them to collect the full amount.

Is that true?
This is emphatically not the case in the UK.

For the record UK student loans are repayed as a progressive income tax that only kicks in at IIRC £15,000/year. And if you don't meet that earning threshold your loans get forgiven.

And agreed. Nice idea.

Posted by Og, King of Bashan (# 9562) on :

I would be interested in knowing what the going rate for student loan debt is as compared to, say, credit card debt. Presumably you pay a premium to buy nondischargeable debt.

In some cases, the IRS counts forgiven debt as income. It varies from case to case, and I can't say how often it would come up in your case. But you would want to make sure that in any case where you were forgiving someone's debt, you weren't landing them in a new heap of debt

Posted by Josephine (# 3899) on :

quote:
Originally posted by Og, King of Bashan:
In some cases, the IRS counts forgiven debt as income. It varies from case to case, and I can't say how often it would come up in your case. But you would want to make sure that in any case where you were forgiving someone's debt, you weren't landing them in a new heap of debt

If the debt is a thing that could be bought and sold, could you give the debt to the debtor, instead of forgiving it? Then the debtor could repay it to themselves at whatever rate made sense for them.

Posted by Beeswax Altar (# 11644) on :

True

But given the complexity of the tax code, I'm positive a good accountant can find away around that.

Posted by Golden Key (# 1468) on :

Josephine--

Check out Nolo.com. They put out self-help law books, and the student loan one helped me a lot. They also have info on their site.

Posted by Boogie (# 13538) on :

If you can afford to buy out and forgive the debt, why not give them the money before they take out the loan?

Posted by Autenrieth Road (# 10509) on :

Because we're talking about delinquent debt which is for sale at a steeply discounted price.

Posted by Net Spinster (# 16058) on :

From the debt collectors' point of view student debt in the US is a good deal because even bankruptcy doesn't allow the debtor to escape (it is possible but more difficult than other types of debt).

Posted by mousethief (# 953) on :

quote:
Originally posted by Boogie:
If you can afford to buy out and forgive the debt, why not give them the money before they take out the loan?

Because for many students it's too late for that.

quote:
Originally posted by Crœsos:

quote:
Originally posted by Josephine:
If it is, is there anything to prevent a charitable organization (or a private citizen, or anyone else) from buying student loans and simply forgiving them?
The only thing stopping them is convincing their donors that relatively privileged college graduates are the best recipients of charitable aid.

What is "relatively privileged"? What a weasel term. Privileged people don't (have to) default on their student loans.

Posted by Beeswax Altar (# 11644) on :

The privileged don't have to take out student loans in the first place.

[ 17. October 2012, 16:22: Message edited by: Beeswax Altar ]

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Beeswax Altar:
True

But given the complexity of the tax code, I'm positive a good accountant can find away around that.

I wouldn't be so sure about this. The IRS treated all forgiven mortgage debt as income till 2007. It took an act of Congress to change this: The Mortgage Forgives Debt Relief Act of 2007. Now after this law you need an accountant and a lawyer to avoid the tax ramifications of mortgage debt relief.

Be careful.

[ 18. October 2012, 01:12: Message edited by: Ruudy ]

Posted by Palimpsest (# 16772) on :

There was an NPR radio spot which described the US government policy of taking a chunk of social security retirment income to repay unpaid student loans. The loans in many cases were made by a parent or grandparent as a cosignor.

Posted by Beeswax Altar (# 11644) on :

quote:
Originally posted by Ruudy:

quote:
Originally posted by Beeswax Altar:
True

But given the complexity of the tax code, I'm positive a good accountant can find away around that.
I wouldn't be so sure about this. The IRS treated all forgiven mortgage debt as income till 2007. It took an act of Congress to change this: The Mortgage Forgives Debt Relief Act of 2007. Now after this law you need an accountant and a lawyer to avoid the tax ramifications of mortgage debt relief.

Be careful.

If I can buy your loan for pennies on the dollar, what is keeping me from settling with you for pennies on the dollar? I can accept $1 as payment in full. Why couldn't I buy your loan and never attempt to collect it?

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by mousethief:

quote:
Originally posted by Crœsos:
The only thing stopping them is convincing their donors that relatively privileged college graduates are the best recipients of charitable aid.
What is "relatively privileged"? What a weasel term.

I presume it refers to the fact that while graduates may have large levels of debt, they still have a degree. Which means that they're far more likely to be able to get the better jobs, and thus to earn more in the future than the people who would be being asked to contribute to a charity set up for their benefit.

Posted by Josephine (# 3899) on :

quote:
Originally posted by Marvin the Martian:
I presume it refers to the fact that while graduates may have large levels of debt, they still have a degree. Which means that they're far more likely to be able to get the better jobs, and thus to earn more in the future than the people who would be being asked to contribute to a charity set up for their benefit.

Some of them have a degree. Some of them have a couple of semesters, or a couple of years, at a for-profit school with nothing to show for it but debt. And some of them who have a degree have had their credit ratings destroyed, making it harder to get those better jobs that they thought they'd have to pay their loans back.

If they've got a good job, then it's unlikely that their student loan debt would have gone into default. Those loans wouldn't be sold to collection agencies. Just the ones that the former students can't pay.

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Beeswax Altar:
If I can buy your loan for pennies on the dollar, what is keeping me from settling with you for pennies on the dollar? I can accept $1 as payment in full.

Nothing prevents the new owner of a loan from selling it. You are free to sell the promissory note (loan) you now own to anyone you wish for any price you can get.

The restrictions and negative ramifications of the sale are not on the seller. They are on the purchaser if the purchaser is the debtor.

If the purchaser of the note is the debtor, and he purchases the promissory note from you for $1, then the IRS and accountants would view as profit the difference between the remaining accrued unpaid balance on the note and $1. This profit is considered taxable and the consequence for the former debtor is taxes owed immediately.

To look at it differently borrowing money can be viewed as a short sale of a promissory note. If you sell high (say borrow $100) and buy low (payback only $1) then you have made a profit of ($99) and you will owe taxes at your marginal tax rate (some % of the $99).

quote:
Why couldn't I buy your loan and never attempt to collect it?

That sounds like a much better alternative to accomplish the goal here. For seven years from initial delinquency, the unpaid debt would remain a stain on the borrower's credit report. It would also accrue unpaid interest and increase in size, increasing the amount that would be owed in taxes if the debt were ever forgiven or retired for any amount less than the unpaid balance. But if the holder of the note bought it at a discount and held it without suing the borrower in court for repayment till after the state's statute of limitations had expired, then the borrower should be fully off the hook and his credit report cleaned up in seven years.

[ 18. October 2012, 19:44: Message edited by: Ruudy ]

Posted by Moth (# 2589) on :

quote:
Originally posted by Marvin the Martian:

quote:
Originally posted by Josephine:
It's my understanding that debt collectors sometimes buy private student loans at pennies on the dollar, and that allows them to collect the full amount.

Is that true?
This is emphatically not the case in the UK.

Don't think it hasn't occurred to the governments to sell them:
Sale of Student Loans Act

Posted by Josephine (# 3899) on :

It's real!

Rolling Jubilee is starting to do exactly this!

Posted by Jengie Jon (# 273) on :

Surely the trick is to forgive it at a set rate per year.

Say the debt is $10,000; how about forgiving it at $1,000 per year for ten years. Then instead of an income hike of $10,000 in one year, you have a hike of $1,000.

Of if you want to do it other ways apply a negative interest rate to the loan.

Jengie

Posted by Snags (# 15351) on :

quote:
Originally posted by Boogie:
If you can afford to buy out and forgive the debt, why not give them the money before they take out the loan?

Because the person doing the forgiving of the debt hasn't had to shell out the full amount of the debt.

I take out a loan for £30,000 but then fail to service it. The loan company decide that they're never going to get the money out of me, or at least not without spending more than the debt is worth in the first place, so they sell the debt to you for £100. You forgive the debt because you're wonderful and you know I'm in the mire.

End result: I'm skint but debt free, you're £100 down, and the loan company is £30k-whatever I'd repaid originally-your £100 down, but writes it off against tax.

If I'd come for you asking for £30k, chances are you'd have fallen over laughing [Smile]

It's essentially what the Occupy Wall Street Rolling Jubilee is doing. Which in the circumstances I think is pretty cool.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Og, King of Bashan:
I would be interested in knowing what the going rate for student loan debt is as compared to, say, credit card debt. Presumably you pay a premium to buy nondischargeable debt.

In some cases, the IRS counts forgiven debt as income. It varies from case to case, and I can't say how often it would come up in your case. But you would want to make sure that in any case where you were forgiving someone's debt, you weren't landing them in a new heap of debt

I have a large amount of PLUS loan debt for sending two of daughters through a private university. The rate is 7.9%, but when you consider the 3 or 4%, forget which, that is taken off the top, the actual rate is over 8%.

Posted by monkeylizard (# 952) on :

quote:
Originally posted by Ruudy:
If the purchaser of the note is the debtor, and he purchases the promissory note from you for $1, then the IRS and accountants would view as profit the difference between the remaining accrued unpaid balance on the note and $1. This profit is considered taxable and the consequence for the former debtor is taxes owed immediately.

Close, but it's not "profit". It falls under the gift tax provisions of the US tax code. The donor usually has to pay the tax, not the recipient*.

From the IRS:

quote:
The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

It only kicks in if the total gifts given in a single year exceed $13,000 per donor per recipient**. There's an exclusion for tuition and medical payments one might make on behalf of another. There's no limit for those. I'm not sure if repayment of another's student loans would fall under that tuition exception or not.

*The IRS isn't stupid. They know that the giver is more likely to be in a higher tax bracket so they want to tax the gift at their rate, not the recipient's. Some exceptions apply.

**A married couple could give $26,000 per year to the same recipient and not be on the hook for the gift tax.

Posted by Ruudy (# 3939) on :

MonkyLizard, I suppose you didn't get a chance to read the link to the IRS page on the mortgage debt forgiveness act.

Here is an IRS page on the IRS treatment of cancelled debt as taxable income (profit) and here is another one that makes the same point.

Here is an IRS page on the IRS treatment of gifts. The IRS understands gifts as coming from friends and families. The IRS takes a dim view of taxpayers claiming that canceled debt from banks, employers or anyone else with whom you have a strictly working relationship are "gifts."

Regardless someone has to pay taxes. You cannot forgive debt without triggering a tax liability at the taxpayers marginal tax rate.

I am worried about the unintended consequences of the Rolling Jubilee's debt forgiveness program on the recipients of debt forgiveness. It's a pity they spent so much on an online presence that is high on production quality but low on transparency, details, mechanics and methodology.

That said, if they can pull it off successfully, my hat is off to them.

[ 15. November 2012, 03:16: Message edited by: Ruudy ]

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Ruudy:
Regardless someone has to pay taxes. You cannot forgive debt without triggering a tax liability at the taxpayers marginal tax rate.

There are some exclusions, as your links mention. Insolvency would be the first one I'd normally expect to find, probably. My oldest daughter is working on becoming a teacher and some of hers may end up forgiven without tax.

I've only dealt with forgiveness of income for a few clients. The one that really bothered me was a few years back when an elderly lady was 1099-C'd by a bank for a credit card debt that was obtained via indentity theft. It ought not be a taxable event for you because someone else is beating you to your mailbox.

quote:
I am worried about the unintended consequences of the Rolling Jubilee's debt forgiveness program on the recipients of debt forgiveness. It's a pity they spent so much on an online presence that is high on production quality but low on transparency, details, mechanics and methodology.

True, but on the other hand, I'd rather pay tax on $50,000 than pay $50,000 and I'd also wonder just how solvent are some of the recipients of this forgiveness.

[ 15. November 2012, 07:50: Message edited by: Mere Nick ]

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Mere Nick:

quote:
Originally posted by Ruudy:
Regardless someone has to pay taxes. You cannot forgive debt without triggering a tax liability at the taxpayers marginal tax rate.
There are some exclusions, as your links mention.

Thank you for chiming in and confirming some of the issues I am raising. Yes, I had meant to add the clause "with a few exceptions" and failed to do so. Good point.

Also, I would add that one can file for insolvency through IRS form 982 - though proving insolvency without legal bankruptcy may be tough if you have any assets at all. It may be worth a try.

quote:
Originally posted by Mere Nick:

quote:
Originally posted by Ruudy: [QUOTE]I am worried about the unintended consequences of the Rolling Jubilee's debt forgiveness program on the recipients of debt forgiveness. It's a pity they spent so much on an online presence that is high on production quality but low on transparency, details, mechanics and methodology.
True, but on the other hand, I'd rather pay tax on $50,000 than pay $50,000 and I'd also wonder just how solvent are some of the recipients of this forgiveness.

Theoretically, yes. Certainly for those with no assets who can claim insolvency without issue.

But practically speaking, the recipient should have knowledge of the forgiveness and the freedom of choice. Debt forgiveness is a not bad if the individual has the money available to pay the tax on forgiven debt. But, without insolvency status with the IRS, the effect of an immediate unpaid tax liability on someone with limited resources can make matters worse. The IRS is the most ruthless of any creditor out there. They can garnish your wages and seize your bank account - all without taking you to court. Guilty until proven innocent. They can make your life a living hell.

Note that this is in direct contrast to unpaid debts to other creditors, which are much more manageable. They may harass you with phone calls and ruin your credit rating but that's about it.

Again, to repeat, I am not defending the system. I want debt relief groups to succeed. I am trying to raise the issues so that it can be done without detriment to the intended beneficiaries. Furthermore, intended beneficiaries must have the option to opt in or opt out, with full knowledge of the consequences for their individual cases.

I can even imagine a class action lawsuit against a group like Rolling Jubilee for making tough situations worse, for people who, after many years were forgiven debts that had already been written off previously. Their lives were getting back to normal and then they receive notice from the IRS they have a big tax bill. That would suck.

Posted by Gwai (# 11076) on :

quote:
Originally posted by Ruudy:
I can even imagine a class action lawsuit against a group like Rolling Jubilee for making tough situations worse, for people who, after many years were forgiven debts that had already been written off previously. Their lives were getting back to normal and then they receive notice from the IRS they have a big tax bill. That would suck.

Though remember that someone was going to buy that debit if Rolling Jubilee didn't, so they were going to get new harassment about their debt anyway. It might be argued it was only the eye of the storm re being rid of debt.

Posted by Mere Nick (# 11827) on :

Let's say as a for instance Rolling Jubilee or some similar group buys Ruudy's loan from a lender. Then let's say Rolling Jubilee informs Ruudy and instructs him to await instructions. After that, RJ doesn't do a thing. It never calls Ruudy. It never sends him anything else. It never communicates in any way. It even shreds any checks Ruudy sends when Ruudy starts getting a bit nervous. But it never sends Ruudy a 1099-C.

I can see how a very informal network could buy up some debt and just sit on the information and the IRS never finding out about it.

Posted by Doublethink (# 1984) on :

Were banks taxed on their bailout money ? Because if not I don't see why this has to be a problem.

Secondly, why can't the rolling Jubilee just sell on the debt to the debtor for 10 cents ? Jubilee then make a loss on the deal so aren't taxed, and the debtor has just been sold ownership of the debt rather than being given any money.

[ 15. November 2012, 18:26: Message edited by: Doublethink ]

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Doublethink:
Were banks taxed on their bailout money ? Because if not I don't see why this has to be a problem.

I don't know what their journal entries looked like but it was probably recorded as a loan or a purchase of stock, wasn't it? If our life is like most folks they probably owe the federal government and not banks, anyway.

quote:
Secondly, why can't the rolling Jubilee just sell on the debt to the debtor for 10 cents ? Jubilee then make a loss on the deal so aren't taxed, and the debtor has just been sold ownership of the debt rather than being given any money.

Why bother with even that? Just shred it, shrug, and call it Miller Time.

Posted by Josephine (# 3899) on :

From the FAQ on Rolling Jubilee's website:

quote:
Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS?No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P.

That means, if I understand it aright, that the IRS will not be notified of the debt cancellation.

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Gwai:

quote:
Originally posted by Ruudy:
I can even imagine a class action lawsuit against a group like Rolling Jubilee for making tough situations worse, for people who, after many years were forgiven debts that had already been written off previously. Their lives were getting back to normal and then they receive notice from the IRS they have a big tax bill. That would suck.
Though remember that someone was going to buy that debit if Rolling Jubilee didn't, so they were going to get new harassment about their debt anyway. It might be argued it was only the eye of the storm re being rid of debt.

Maybe, but maybe not. We don't know. Rolling Jubilee bought is planning to buy debt at 5 cents on the dollar. This means it has already been written down by previous lenders, investors and holders 95%. It is viewed as almost worthless. There might not be buyer for this debt.

quote:
Originally posted by Mere Nick:
Let's say as a for instance Rolling Jubilee or some similar group buys Ruudy's loan from a lender. Then let's say Rolling Jubilee informs Ruudy and instructs him to await instructions. After that, RJ doesn't do a thing. It never calls Ruudy. It never sends him anything else. It never communicates in any way. It even shreds any checks Ruudy sends when Ruudy starts getting a bit nervous. But it never sends Ruudy a 1099-C.

I can see how a very informal network could buy up some debt and just sit on the information and the IRS never finding out about it.

Thank you. This is why as I think through it more I think Rolling Jubilee is a waste of charitable contribution.

The scenario you describe sounds great except for one thing. It hasn't changed ANYTHING. My credit rating still sucks till the statute of limitations runs out! The only thing that has changed is that I might not receive another round of phone calls - on debt that is worth so little no one was probably going to call me anyway.

Rolling Jubilee says they have raised $207,965 to buy some $4 million of debt. We'd all be better off if they used the $207,965 to send information to debtors advising them not to pay their debts no matter what kind of phone calls they get.

Traditional credit counseling may be a much better use of charitable funds.

What am I missing, folks?

quote:
Originally posted by Doublethink:
Secondly, why can't the rolling Jubilee just sell on the debt to the debtor for 10 cents ? Jubilee then make a loss on the deal so aren't taxed, and the debtor has just been sold ownership of the debt rather than being given any money.

This scenario was discussed earlier in the thread.

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Josephine:
From the FAQ on Rolling Jubilee's website:

quote:
Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS?No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P.
That means, if I understand it aright, that the IRS will not be notified of the debt cancellation.

This is good to see! Their website has improved dramatically. There was no FAQ section when you first posted a link to it.

What it still does not explain is whether there is any material improvement to the intended beneficiaries (ie cleaning up credit report). If not, then my question remains about whether this is indeed a worthy use of charitable funds.

This is my point: We should use these funds to feed, clothe and house the poor - not just to insure against potential annoying unwanted phone calls.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Ruudy:

What it still does not explain is whether there is any material improvement to the intended beneficiaries (ie cleaning up credit report). If not, then my question remains about whether this is indeed a worthy use of charitable funds.

It should clean it up, shouldn't it? It would be marked paid instead of outstanding, and all.

quote:
This is my point: We should use these funds to feed, clothe and house the poor - not just to insure against potential annoying unwanted phone calls.

Well, stamping a bill as paid just takes a bit of rubber and ink, at least for the short run. Farmers, tailors and builders won't check with what you did before they do their thing.

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Mere Nick:

quote:
Originally posted by Ruudy:

What it still does not explain is whether there is any material improvement to the intended beneficiaries (ie cleaning up credit report). If not, then my question remains about whether this is indeed a worthy use of charitable funds.
It should clean it up, shouldn't it? It would be marked paid instead of outstanding, and all.

I've only seen debt forgiveness situations for real estate clients who were solvent. So I'll trust your assessment of it. If it does clean up the credit report - that'd be great.

If Rolling Jubilee does not file a 1099c so the IRS is not made aware of the tax liability, doesn't that just mean the IRS doesn't come looking for the money even though technically the former debtor's tax liability remains, correct?

The Debt Resistors Operations Manual posted on Rolling Jubilee's website looks excellent.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Ruudy:
I've only seen debt forgiveness situations for real estate clients who were solvent. So I'll trust your assessment of it. If it does clean up the credit report - that'd be great.

Oh, I'm just asking. My guess, and that is all it is, is that it should help to clean it up. I'd like to hear from some one who actually works with credit scores. It seems that it could still be a bad mark on you score if it was sold for pennies on the dollar. Wouldn't you want to know something like that happened if someone was trying to borrow money from you?

quote:
If Rolling Jubilee does not file a 1099c so the IRS is not made aware of the tax liability, doesn't that just mean the IRS doesn't come looking for the money even though technically the former debtor's tax liability remains, correct?

I would expect the total tax liability for everyone involved to go down since interest income was not actually realized.

quote:
The Debt Resistors Operations Manual posted on Rolling Jubilee's website looks excellent.

I didn't see that. I'll have to take a look.

Posted by Mere Nick (# 11827) on :

I looked at the debt resistor's manual for a bit and like what I see, thus far.

I'd like to discuss the strategy we are using to deal with our massive education debts but I don't want to run the chance of certain folks being made hip to it.

Posted by Josephine (# 3899) on :

If you know of any strategies that would be useful for dealing with massive student loan debt, please send me a PM. I know some folks who need help.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Josephine:
If you know of any strategies that would be useful for dealing with massive student loan debt, please send me a PM. I know some folks who need help.

Ok. I will change my settings later this evening so I can do the PM thing. Don't count me as an authority but as just one guy telling his story as he understands it. I hope I will be of help.

About 13-14 months ago I was reviewing our finances and when I looked at the college debt situation I went into a major spiral that ended up with my wife having me at the hospital the day after Thanksgiving with someone keeping an eye on me so I didn't try to hurt myself. It turns out I have clinical depression and a good bit of anxiety. The money issue isn't the real problem but was the precipitating event. Our Plan A for paying for college (selling land we bought a few years ago) is not working out too well with the economy in the toilet and the health problem prevented me from being able to focus on putting together Plan B. Our issue is with PLUS debt. I will tell you what we put together in case you or someone you know is dealing with PLUS debt, too. With what our oldest daughter is doing we have also done some planning regarding Stafford debt, too.

I guess I told you all of that just so I could also say that if any of you are feeling buried by it all, let not you heart be troubled. Mine got troubled and it doesn't help.

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Mere Nick:
if any of you are feeling buried by it all, let not you heart be troubled. Mine got troubled and it doesn't help.

I am definitely filing this one for future use! Great quote.

[ 20. November 2012, 03:45: Message edited by: Ruudy ]

Posted by Late Quartet (# 1207) on :

I'm really saddened to set the incredible burdens that student debt is causing and know this is becoming a larger and larger issue in the UK (and feel 'Grace & Mortgage' by Peter Selby nailed the issue about why it locks us away from our true selves).

I'm very excited about this rolling jubilee thing and wondered whether that topic is worth a thread in its own rights to explore the issue further?

Posted by Josephine (# 3899) on :

quote:
Originally posted by Late Quartet:
I'm very excited about this rolling jubilee thing and wondered whether that topic is worth a thread in its own rights to explore the issue further?

Go for it!

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Late Quartet:
I'm really saddened to set the incredible burdens that student debt is causing and know this is becoming a larger and larger issue in the UK

It can be a very scary time and many folks hold it in. In many circles it seems more acceptable to bring up your trip to the proctologist than it is to bring up money.

Posted by Mere Nick (# 11827) on :

There is an interesting article in the WSJ today about education debt.

If you live in the US, you, or someone you know, is probably buried under education debt.

What changes, if any, do folks see coming down the track?

Posted by tclune (# 7959) on :

quote:
Originally posted by Mere Nick:
There is an interesting article in the WSJ today about education debt.

If you live in the US, you, or someone you know, is probably buried under education debt.

What changes, if any, do folks see coming down the track?

I hope we return to the system of my youth, where the state schools were essentially free and open to everyone. They were an important ladder for helping motivated poor folks to better their lot.

--Tom Clune

Posted by Josephine (# 3899) on :

quote:
Originally posted by Mere Nick:
There is an interesting article in the WSJ today about education debt.

The story is behind a paywall. Can you summarize, please?

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Josephine:

quote:
Originally posted by Mere Nick:
There is an interesting article in the WSJ today about education debt.
The story is behind a paywall. Can you summarize, please?

I googled it in google news and am able to pull it up. I just tried to email you a pdf, too.

The article doesn't actually tell anything new to many of us. However, it does seem that being above the fold on the front page of a major newspaper is something new.

In short, there is so much education debt that it suggests that maybe it has been too easy to borrow money for education. The amount of education debt outstanding is exploding and people are finding it harder and harder to pay. Some are suggesting that lending standards be stricter and more consideration given to the amount of income that can be generated by the education in question.

Posted by Ruudy (# 3939) on :

Does it talk at all about how so much debt could be a major reason why education costs have spiraled out of control and grown faster than inflation?

Posted by Mere Nick (# 11827) on :

Maybe this link,which goes to a similar article will work. I googled the news for the WSJ article and went right to it but the link I posted earlier goes to the pay wall that Josephine said.

Posted by Porridge (# 15405) on :

quote:
Originally posted by Ruudy:
Does it talk at all about how so much debt could be a major reason why education costs have spiraled out of control and grown faster than inflation?

Why would this be the case? It's not the schools borrowing the money, it's the students. Students end up in debt, not schools.

College costs go up for different reasons: tenured faculty retire later and later, and go on pulling down maximal salaries and bennies while teaching lighter loads, which means adding teachers, usually adjuncts; colleges reach out to broader and broader segments of the population, and have to add programs and administrators to run them to add to the student body; they have as one result additional accreditation hoops to jump through, and so on.

The little podunk college where I taught briefly added three programs in the one semester I taught there: one for veterans of our current wars; one for women prisoners; and one for workers interested in math and science para-education. Each program got a dedicated staff, and space, and who-knows-what-all.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Ruudy:
Does it talk at all about how so much debt could be a major reason why education costs have spiraled out of control and grown faster than inflation?

Doesn't appear to be mentioned in the particular article, but it does seem obvious that demand would not be nearly as high if it all had to be paid up front, cash out of pocket.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Porridge:

quote:
Originally posted by Ruudy:
[qb] Does it talk at all about how so much debt could be a major reason why education costs have spiraled out of control and grown faster than inflation?
Why would this be the case? It's not the schools borrowing the money, it's the students. Students end up in debt, not schools.

We borrowed the money, hundreds of billions worth, to pay to the schools. If I knew you had borrowed lots of money and was also receiving tax credits to pay for my services I doubt I would be hesitant to raise my price.

Posted by Ruudy (# 3939) on :

quote:
Originally posted by Porridge:

quote:
Originally posted by Ruudy:
Does it talk at all about how so much debt could be a major reason why education costs have spiraled out of control and grown faster than inflation?
Why would this be the case? It's not the schools borrowing the money, it's the students. Students end up in debt, not schools.

Prices are set by supply and demand. Easy credit to consumers of a good increases demand- especially predatory credit. An example would be all the easy credit that contributed to the housing bubble.

Posted by Mere Nick (# 11827) on :

HCH said in a thread about helicopter parents

quote:
It might be interesting to have a thread discussing (in a civilized fashion) the costs of higher education.

tclune talked about it, too.

quote:
Well, in the US, the parents are going into debt up to their eyeballs to pay your salary. If you want the student to be treated as an adult by the parents, lower your damned rates so the parents aren't indentured to your institution for the rest of their lives.

Frankly, I find the arrogance of colleges insulting. The only thing they want from the parents is an endless supply of money with no accountability. If you can see anything "adult" about that, you are as immature as your students. Or so ISTM.

and

quote:
not many children are able to borrow $140-200 K without at least a parental co-sign, and not very many parents have the credit for that without putting their house up for collateral.

I know an awful lot of parents who were put in that vice, and more than a few have had to delay their retirement to pay off the absurd tuition for a child with a history degree and no visible means of support. The amazing thing is not the occasional helicopter parent, but the vast number of parents who place their retirement in jeopardy without injecting themselves into every detail of their children's education.

In addition to the Stafford loans my oldest and youngest have maxed out on, I'm in for $200k+ in PLUS loans.

I believe it was JP Getty who said "If you owe the bank $100, that’s your problem; if you owe the bank $100 million, that’s the bank’s problem."

In this case, Obama had the federal government take over the PLUS loan business and is charging me over twice what our mortgage rate is. Good luck collecting, pal.

Posted by ToujoursDan (# 10578) on :

quote:
Originally posted by Ruudy:

quote:
Originally posted by Porridge:

quote:
Originally posted by Ruudy:
Does it talk at all about how so much debt could be a major reason why education costs have spiraled out of control and grown faster than inflation?
Why would this be the case? It's not the schools borrowing the money, it's the students. Students end up in debt, not schools.
Prices are set by supply and demand. Easy credit to consumers of a good increases demand- especially predatory credit. An example would be all the easy credit that contributed to the housing bubble.

Much of that demand is driven by the rapidly expanding international student population, who are sought after because they are likely to pay the full tuition, as they are often ineligible for scholarships and discounts. The same is true for state schools (University of California, SUNY, Rutgers, etc.) who are now actively courting out-of-state residents because they don't receive the in-state tuition discount. This, of course, denies places for eligible students who live in the state these schools are supposed to be serving.

But while supply and demand models work for widgets and possibly even houses, the university grant/loan market has always been heavily regulated. I don't believe that the availability of grants and loans is the primary driver of the tuition explosion. The Federal government started offering student loans in the 1950s, but the explosion in school costs didn't occur until the late 70s.

[ 04. January 2013, 20:31: Message edited by: ToujoursDan ]

Posted by Dave W. (# 8765) on :

quote:
Originally posted by Mere Nick:
In this case, Obama had the federal government take over the PLUS loan business and is charging me over twice what our mortgage rate is.

What do you mean by the "take over" bit - could you provide a reference?

From what I can tell, PLUS loans have always been part of the Federal Direct Loan Program, and the rate has been fixed at 7.9% since July 1, 2006 - so it's not clear what this has to do with Obama (or with mortgage interest rates, for that matter.)

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Dave W.:

quote:
Originally posted by Mere Nick:
In this case, Obama had the federal government take over the PLUS loan business and is charging me over twice what our mortgage rate is.
What do you mean by the "take over" bit - could you provide a reference?

From what I can tell, PLUS loans have always been part of the Federal Direct Loan Program, and the rate has been fixed at 7.9% since July 1, 2006 - so it's not clear what this has to do with Obama (or with mortgage interest rates, for that matter.)

news article

I was paying up to 7.25% before the takeover on some of the PLUS debt. Some even a touch under 5%. New loans are 7.9% plus a 4% origination fee.
Obama has hurt, not helped. For him to take over the business, pay what he does to get the money and then turn around and charge what he does, it is a screw job that no one else has even come close to pulling on me.

There's more to it regarding my personal situation but right now it is 5:05 and I'd rather go have a beer than talk about money.

Posted by Mere Nick (# 11827) on :

Here's a little something else, too.

article

There's a big problem brewing.

Posted by Dave W. (# 8765) on :

Thanks for the links, Mere Nick.

Posted by Sergius-Melli (# 17462) on :

quote:
Originally posted by Justinian:
For the record UK student loans are repayed as a progressive income tax that only kicks in at IIRC £15,000/year. And if you don't meet that earning threshold your loans get forgiven.

Just to correct the facts, it is changing so that you have to be earning £21,000 and above before Student Loan repayments kick-in and are wiped off after a different period of time depending on where you studied... in reality, unless you have the means to pay it all of in either one go or early you are unlikely to ever pay back all that you were loaned (+ the interest)

Posted by deano (# 12063) on :

in the UK you pay 9% of the difference between your salary and £21,000 but it's taken out before tax.

So if your gross starting salary is £25,000 you will ay 9% of (£25,000 - £21,000) £4000 which is £360 per annum, or £30 per month.

This was accurate as at the beginning if December when it was explained to us by the admissions tutor at Warwick University.

Posted by Mere Nick (# 11827) on :

IBR Calculator

For my kids' Stafford loans they can pay based upon income for 25 years, ten in certain public sector jobs.

Posted by Carys (# 78) on :

quote:
Originally posted by deano:
in the UK you pay 9% of the difference between your salary and £21,000 but it's taken out before tax.

So if your gross starting salary is £25,000 you will ay 9% of (£25,000 - £21,000) £4000 which is £360 per annum, or £30 per month.

This was accurate as at the beginning if December when it was explained to us by the admissions tutor at Warwick University.

It all depends when you started uni. I started in 1997 and was the last year pre tuition fees and on the old mortgage style loans, so I have to apply to defer the loans each year as I earn under the threshold of c.27k. But if I earn over that I post back a proportion of what I owe. From 1998 onwards they changed to being paid through the tax system over a lower threshold. Then this year it changed again with the biggest fees.

Carys

[ 11. January 2013, 18:21: Message edited by: Carys ]

Posted by Sergius-Melli (# 17462) on :

quote:
Originally posted by Carys:

quote:
Originally posted by deano:
in the UK you pay 9% of the difference between your salary and £21,000 but it's taken out before tax.

So if your gross starting salary is £25,000 you will ay 9% of (£25,000 - £21,000) £4000 which is £360 per annum, or £30 per month.

This was accurate as at the beginning if December when it was explained to us by the admissions tutor at Warwick University.
It all depends when you started uni. I started in 1997 and was the last year pre tuition fees and on the old mortgage style loans, so I have to apply to defer the loans each year as I earn under the threshold of c.27k. But if I earn over that I post back a proportion of what I owe. From 1998 onwards they changed to being paid through the tax system over a lower threshold. Then this year it changed again with the biggest fees.

Carys

I saw what you did there... cheeky!

You forgot to mention that not all fees have gone up on all courses, nor have you remembered to mention that the payback threshold has gone up, nor the fact that such a tiny amount is paid back that few are likely to ever pay them back and reach 'write-off' and have most of the amount they owe never asked for.

Did your loan come from government or from the bank?

Posted by Arethosemyfeet (# 17047) on :

quote:
Originally posted by Sergius-Melli:

quote:
Originally posted by Carys:

quote:
Originally posted by deano:
in the UK you pay 9% of the difference between your salary and £21,000 but it's taken out before tax.

So if your gross starting salary is £25,000 you will ay 9% of (£25,000 - £21,000) £4000 which is £360 per annum, or £30 per month.

This was accurate as at the beginning if December when it was explained to us by the admissions tutor at Warwick University.
It all depends when you started uni. I started in 1997 and was the last year pre tuition fees and on the old mortgage style loans, so I have to apply to defer the loans each year as I earn under the threshold of c.27k. But if I earn over that I post back a proportion of what I owe. From 1998 onwards they changed to being paid through the tax system over a lower threshold. Then this year it changed again with the biggest fees.

Carys
I saw what you did there... cheeky!

You forgot to mention that not all fees have gone up on all courses, nor have you remembered to mention that the payback threshold has gone up, nor the fact that such a tiny amount is paid back that few are likely to ever pay them back and reach 'write-off' and have most of the amount they owe never asked for.

The effect of that "tiny amount" is that, once you take National Insurance into account, I have a higher marginal tax rate than someone on twice my salary who went to university 20 years earlier. I escaped the worst of the fees, but they have gone up for almost every course, and certainly for courses in the hard sciences.

Posted by Sergius-Melli (# 17462) on :

quote:
Originally posted by Arethosemyfeet:

quote:
Originally posted by Sergius-Melli:

quote:
Originally posted by Carys:

quote:
Originally posted by deano:
in the UK you pay 9% of the difference between your salary and £21,000 but it's taken out before tax.

So if your gross starting salary is £25,000 you will ay 9% of (£25,000 - £21,000) £4000 which is £360 per annum, or £30 per month.

This was accurate as at the beginning if December when it was explained to us by the admissions tutor at Warwick University.
It all depends when you started uni. I started in 1997 and was the last year pre tuition fees and on the old mortgage style loans, so I have to apply to defer the loans each year as I earn under the threshold of c.27k. But if I earn over that I post back a proportion of what I owe. From 1998 onwards they changed to being paid through the tax system over a lower threshold. Then this year it changed again with the biggest fees.

Carys
I saw what you did there... cheeky!

You forgot to mention that not all fees have gone up on all courses, nor have you remembered to mention that the payback threshold has gone up, nor the fact that such a tiny amount is paid back that few are likely to ever pay them back and reach 'write-off' and have most of the amount they owe never asked for.
The effect of that "tiny amount" is that, once you take National Insurance into account, I have a higher marginal tax rate than someone on twice my salary who went to university 20 years earlier. I escaped the worst of the fees, but they have gone up for almost every course, and certainly for courses in the hard sciences.

If your going to compare to 20 years ago...(!!!) then yes it is a major jump! However, if your comparing to someone, say in the years just before these most recent changes, I don't imagine there will be much difference...

Posted by Marvin the Martian (# 4360) on :

quote:
Originally posted by Arethosemyfeet:
The effect of that "tiny amount" is that, once you take National Insurance into account, I have a higher marginal tax rate than someone on twice my salary who went to university 20 years earlier.

That would be the case regardless of how the government decided to fund education. Even with no loans and a graduate tax you'd have to pay the extra "tiny amount" every month.

Posted by Belle Ringer (# 13379) on :

I have a friend with $100,000 student loan debt, who was denied the PhD. He will be in debt the rest of his life I guess because the rules say he has to pay the loan in the amount agreed, or a lesser amount that is a certain percentage of his income. He picks up temporary teaching jobs here and there, earning so little he's repaying about $10 per month. How many months will it take to repay $100,000? (I don't know what interest rate is when income/repayment is so low.)

But when the goal was to be a college professor, did $100,000 debt make sense? For an M.D., yes, but professors aren't paid a lot until they get to senior levels.

We as a culture need to rethink loans, make some judgments about the cost of the education vs the likely returns. But no one has motivation to do that. The schools thrive on getting students, not telling some "the education you seek will cost more than the resulting job will pay." Student loans cannot be discharged in bankruptcy so the lenders have motivation to encourage more borrowing, not compare borrowing to ability to repay.

Posted by Mere Nick (# 11827) on :

quote:
Originally posted by Belle Ringer:
I have a friend with $100,000 student loan debt, who was denied the PhD. He will be in debt the rest of his life I guess because the rules say he has to pay the loan in the amount agreed, or a lesser amount that is a certain percentage of his income. He picks up temporary teaching jobs here and there, earning so little he's repaying about $10 per month. How many months will it take to repay $100,000? (I don't know what interest rate is when income/repayment is so low.)

But when the goal was to be a college professor, did $100,000 debt make sense? For an M.D., yes, but professors aren't paid a lot until they get to senior levels.

We as a culture need to rethink loans, make some judgments about the cost of the education vs the likely returns. But no one has motivation to do that. The schools thrive on getting students, not telling some "the education you seek will cost more than the resulting job will pay." Student loans cannot be discharged in bankruptcy so the lenders have motivation to encourage more borrowing, not compare borrowing to ability to repay.

What sort of loan does your friend have? Who does he really owe it to? Stafford? PLUS? private?

If we need to rethink loans I'd start first by making the schools co-sign the loan. That will make the schools say right up front if they think they are really worth what they charge.

Posted by Sergius-Melli (# 17462) on :

quote:
Originally posted by Belle Ringer:
We as a culture need to rethink loans, make some judgments about the cost of the education vs the likely returns.

Sorry to go of an a slight tangent here - we might well need to rethink loans, but more importantly we need to rethink university education in general. The idea that a majority should go to university (New Labours 50% of peeps going to uni. springs to mind) is an impractical and illogical proposition. We need to rethink what a university education is for, who should need the level of specialisation and what skills that a university graduate should achieve from their degree (that of course requires a rethink about secondary school education and the levels of compentence their). When it is an ideological belief that a majority of people should have a university education you run the risk of watering down the value, but also the quality, of a degree, and also increase the costs of such an education to the state and the individual.

I hope that the situation with the loan sorts itself out (it seems ridiculously large!) and I apologise for having highjacket your problem with a little rant about university education.

Posted by ken (# 2460) on :

quote:
Originally posted by Belle Ringer:
I have a friend [...] who was denied the PhD.

"Denied"? You mean he failed? His work wasn't good enough for a doctorate? You make it sound as if they arbitrarily took against him and decided not to award a PhD because of the colour of his hair or something.

I don't know how it works in the USA, but in Britain its quite rare to fail a PhD on a thesis that is actually submitted. The supervisor and the department ought to spot an inadequate thesis before it is finished. If someone can't hack the work they usually never complete - either they drop out altogether or else they keep on deferring submission for year after yeaar after year... Its also not unknown for a student to be diverted away from a PhD and given a lesser postgraduate degree of some sort - often an MPhil - its quite common for students intending to take a PhD to be required to resister for a 2-year MPhil and to transfer to the doctorate after one or two years.

Posted by Belle Ringer (# 13379) on :

quote:
Originally posted by ken:

quote:
Originally posted by Belle Ringer:
I have a friend [...] who was denied the PhD.
"Denied"? You mean he failed? His work wasn't good enough for a doctorate? You make it sound as if they arbitrarily took against him

Hard to say, it's a friend so I'm really not in a position to ask aggressive questions. The friend believes it was arbitrary. Things like -- the thesis topic was approved and drafts reviewed, but at thesis defense the same people who had approved the work all along said "bad topic, you flunk." If it was a bad topic, why did they approve the topic and several years of drafts? Or is there a whole other side to the story?

Two years before the thesis was due I told a different friend, a former university dean, what was going on, and he said "there will be no PhD." Several PhD candidates were involuntarily transferred from the school that had accepted them to a different school in a university reorganization, which meant they were re-assigned to thesis advisers who had not chosen these candidates to sponsor. The former dean said candidates who get transferred liked that are not wanted by the receiving school, and usually end up with no degree no matter how excellent their work. He told me several similar stories he had witnessed in other schools.

So who knows, was it a bad thesis or was my friend an innocent victim of university politics?

Posted by Mere Nick (# 11827) on :

What are the loan details? Depending on types of loans, certain things can be done to defer payment way into the future, reduce payment, pay only part, etc.

Posted by Mere Nick (# 11827) on :

http://askheatherjarvis.com

Some US folks might find this quite helpful.

Posted by churchgeek (# 5557) on :

quote:
Originally posted by Golden Key:
Josephine--

Check out Nolo.com. They put out self-help law books, and the student loan one helped me a lot. They also have info on their site.

Thank you! That looks like a fabulous resource!

Posted by Josephine (# 3899) on :

quote:
Originally posted by Mere Nick:
If we need to rethink loans I'd start first by making the schools co-sign the loan. That will make the schools say right up front if they think they are really worth what they charge.

I think that's a brilliant idea. Absolutely brilliant.

Posted by Mere Nick (# 11827) on :

Seems debt write-offs are booming.

article

UBB.classic^TM 6.5.0