An Idea for Student Debt Relief

AssHatZombie said:
you just lose me as treating you seriously as a person when you factor "vanquishing death" into to your economic world.
Click to expand...

To be clear, I'm not arguing we should factor that in. Quite the contrary -- I'm arguing we shouldn't. But that's implicitly part of the argument I'm responding to -- that you never know what's going to happen in the future, so you shouldn't trade a temporary benefit (no matter how large) for a permanent burden (no matter how tiny). Even trading a million dollars today for a millionth of our income every year could, in theory, wind up being a bad deal for you, if your income rose enough or your life was long enough.
 
Hello Mina,

Mina said:
Unlike most liberals, I don't like the idea of generalized elimination of student debt.

Partly that's because I dislike the idea of a net transfer of wealth to people like young doctors and lawyers who will end up making a killing in their lifetimes.

Partly it's that I don't like the injustice of it in a situation where you compare someone who spent years making sacrifices to pay down what she owes, and a peer who lived the high life while making only minimum payments and taking every deferment opportunity, and now they're both put in the same situation.

But mostly it's because I worry about the unintended consequences -- for example, if lenders worry about debts being wiped out again, they'll charge much higher rates to account for that risk, making education even less affordable. Similarly, if people implicitly factor in the chance of having debt wiped out, they'll be willing to take on more of it, which puts upward pressure on college costs.

So, here's my pet idea, in lieu of that:

The government agrees to pay off however much student debt you'd like them to pay off, but in exchange you get a PERMANENT increase in all your tax rates of 0.1 point (income, estate, and capital gains), for each $1,000 of debt the government assumes.

So, say you graduate with $50,000 in student debt at 10yrs/5% terms, but you can only find work paying $30,000 per year. And so that $6,364 per year in loan payments is just killing you. You can wipe it all out, and in exchange your tax rates go up 5 points. Based on a $12,550 standard deduction, you would have been on the hook for $1,895 in taxes, but after the increase you'd be on the hook for $2,270. So, year one, you're relieved of $6,364 in payments, in exchange for $375 in extra taxes. Great deal. And even across a lifetime of earning, you are likely to come out ahead with that deal, unless you wind up making a lot more money down the road. So, you'd probably be smart to take the deal.

Now say that, instead, you're a freshly minted lawyer with a job offer from a big firm to earn $200,000. Well, now, if you take that same offer to wipe out $50k in debt for a permanent 5 point hike in tax rates, then year one you get the same $6,364 off your loan liability, but it's in exchange for a year one increase in taxes of $14,169. So, right out of the gate, it's a garbage deal, and you won't take it. You'll just pay what you owe.

Where it gets a bit tougher is in the middle. Like same deal, but your job pays $60k/year. Taking the deal helps you out in the early years: $6,365/year of debt payment relief in exchange for $3,498 more in taxes. But ten years down the road, that loan would be going away, anyway, whereas that tax increase persists. So, if you're really hurting right now, maybe it's worth paying more in the long haul in exchange for relief when you really need it. But if you're honest with yourself, you may admit the current pain isn't really that bad, so just bite bullet, tighten your belt, and pay what you owe.

You can tweak this idea by adjusting what dollar amounts equate with what tax change. Like if it's 0.1 point of hike for every $2,000, instead of every $1,000, it's friendlier to debtors..... it still wouldn't be attractive the lawyer in the second example, but will look like a better deal for the guy making $60k in the third.

The advantage of this system is that it gives people an incentive to be honest with the government, and themselves, about future earning prospects. If you're genuinely desperate, you'll jump at this, but if you know you're just temporarily strapped and will soon have plenty of money, you won't offload that debt onto the taxpayer when you know it'll mean higher taxes on a lifetime of high earnings. And it preserve the incentive to keep school costs low, since you pay at least some of it in some form, regardless.
Click to expand...

That's a really creative idea. I like it.

And for those who took the deal, and just can't stand the idea of a higher tax rate for life, give them the one time option to pay back everything they were granted at any time, with interest, to get back to their original tax rate.
 
Mina said:
I think that would lack some of the advantages of the program I'm talking about. For example, it would be a big windfall for a lot of rich people (ultimately at the cost of poorer taxpayers). You could be a doctor, 10 or 15 years into a career, earning half a million per year, without a penny of student loan debt remaining, and suddenly you get a check from a couple hundred thousand bucks, to reimburse you for past payments, with that bill eventually winding up in the taxes of people who don't earn a tenth what you do.

I like my idea because richer people would steer clear of it, since the higher taxes they'd be taking on would cost them more, in the long run. That said, I suppose the program could be done with some sort of retrospective element. For example, if you already paid off student loans, you can opt to be reimbursed on the same basis (every $1,000 of reimbursement giving you a permanent 0.1% increase in taxes), but with those extra taxes also being done retroactively (e.g., your past cumulative AGI would be multiplied against the surtax, from the time you took on debt to the present, with some sort of interest rate adjustment, with the intent of putting you in the same position, financially, as you'd have been in if the plan had been available when you graduated and you'd opted in). So, for example, you paid $50,000 on your student loans a decade or two ago, and now you can opt to get that refunded, less whatever extra taxes you'd have had if you'd been paying at a 5-point higher rate all along.

That may be too complicated to be workable, but there are probably some simplified methods that would get to about the same point, where people who opt in, now, are put in roughly the same position as they'd be in if the program had always existed and they'd opted in back at the start.
Click to expand...

My way is simple, prosecute a crime because a crime was committed here. Any legal agreement birthed from fraud is null and void. Rich people can be defrauded too.

You're playing class warfare here. I'm saying we all get equal protection under the law from predators.
 
Mina said:
That's a bit like saying that student have borrowed money hundreds of times, when you consider every credit card transaction, and they only defaulted on that one student loan, so that's a great average.

The reality is that Trump is a miserably inept businessman, whose return on the fortune his father gave him was FAR below what any idiot with an index fund would have gotten in the same time. Yet six separate times, the government helped him stick his creditors after he got in over his head. If we're willing to protect that kind of serially incompetent aristocrat, then I'd certainly like to protect a guy from a poor background who made some unsophisticated decisions to finance his education at a point when he was still a teenager.



That's how it used to be, and at the time very, very few went to college, and most of those who did came from wealthy families. I'd hate to risk returning to the bad old days.
Click to expand...


Why did you amputate a shred of my thought and post it as if it was a whole thought?
 
Guille said:
My way is simple, prosecute a crime because a crime was committed here.
Click to expand...

What crime?

You're playing class warfare here.
Click to expand...

I'm attempting to provide relief to those who need it most. I'm concerned about loan forgiveness instead functioning as a kind of net transfer of wealth from poorer/working-class people to richer/college-educated people, which is the "class warfare" you end up with if most of the dollar value of obligations people are walking away from are big loans by doctors, lawyers, and others who will soon be rich (after effectively foisting their debt off on taxpayers with far lower earnings in their future).
 
RB 60 said:
Don't you support the Democrats? They're for it.
Click to expand...

I'm more in line with Democrats, but I don't blindly follow. I have my own set of principles and vote for the party that most aligns with those principles, and that party happens to be the Democrats.
 
American Man said:
I'm more in line with Democrats, but I don't blindly follow. I have my own set of principles and vote for the party that most aligns with those principles, and that party happens to be the Democrats.
Click to expand...

Same here. I also have my own set of principles and vote for the party that most aligns with those principles. Democrats are far from those principals.
 
Implement a progressive tax on college endowments and make student loan debt eligible for dissolution in bankruptcy. Then place a cap on tuition for any institution receiving government dollars.
 
If student loans are forgiven, lenders will raise interest rates for future students.

Really, the best advice to help your kid pay for college is to start a Roth IRA in his/her name and keep contributing to it until the kid turns 18. Compound interest is a wonderful thing, and you're allowed early withdrawals without any tax or penalty so long as the money goes towards education or a first-time home purchase, two things any young adult will find useful.

If you contribute a measly $100/month into the kid's IRA for 18 yrs and assume a conservative 6% annual compound interest, that account will be worth over $37,000 by the time the kid is ready for college -- and it's all tax-free.
 
American Man said:
Really, the best advice to help your kid pay for college is to start a Roth IRA in his/her name and keep contributing to it until the kid turns 18.
Click to expand...

To contribute to a Roth IRA, the kid needs that amount of earned income. So unless the baby is a model or something, a Roth IRA is out of the question. When a child turns 16, I strongly suggest you take the amount of any earned income they make, and put it in a Roth IRA. If the kid makes $3k, you as a parent put $3k in a Roth IRA, and let the kid keep the $3k that he earned. The IRS considers this you giving the kid $3k, and the kid putting the $3k they earned in a Roth IRA(money is fungible).

For college, it is a horrible deal. If you can put $6k a year(the legal limit) into a Roth IRA starting from age 16, and get 8% returns adjusted for inflation(a very reasonable return), then at age 18, the kid will have $12.48k, so $480 more. You will save less than $100 in taxes, and lock up money so you cannot use it as needed.

For retirement, it is a great deal. We do not usually think of a child's retirement, but here goes. $6k a year, starting at 16 and ending at 66, would be an inflation adjusted $3.4 million. That is the equivalent amount in future dollars to $3.4 million, and it would all be tax free. A retirement of well over $100k (after taxes) would be very easy with that.
 
Mina said:
What crime?



I'm attempting to provide relief to those who need it most. I'm concerned about loan forgiveness instead functioning as a kind of net transfer of wealth from poorer/working-class people to richer/college-educated people, which is the "class warfare" you end up with if most of the dollar value of obligations people are walking away from are big loans by doctors, lawyers, and others who will soon be rich (after effectively foisting their debt off on taxpayers with far lower earnings in their future).
Click to expand...

1. Price Gouging, Fraud, Collusion...

2. No, you're not. You're playing class warfare. A victim is a victim no matter how much money they make.
 
Guille said:
1. Price Gouging
Click to expand...

Is there a specific law you think they're violating there?

Fraud
Click to expand...

There are some examples of that, to be sure -- mostly around fly-by-night, for-profit operations. For example, Trump famously defrauded a bunch of students out of a lot of money with his "university." I'm all for punishing that harshly. But I think that comes down to individual examples and whether you can substantiate a claim of fraud against a particular university.

Collusion...
Click to expand...

What do you have in mind there? Is there evidence that universities are colluding?

2. No, you're not. You're playing class warfare.
Click to expand...

I'm trying to provide relief for those most in need of it. That, of course, will poorer people. If that's class warfare, I'll happily take the label of class warrior. But helping out the needy isn't something I consider class warfare.
 
You must log in or register to reply here.
Back
Top