'The Public Service Loan Forgiveness Bonanza' (Brookings)

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Moderately interesting Brookings paper with which even many conservatives may agree.  Focuses mainly on the use of the PSLF program by those with graduate and professional degrees, to obtain loan forgiveness after 10 years of income-based repayments.

"Unlike other loan forgiveness programs targeted at certain professions, PSLF defines public service broadly enough to encompass a quarter of the U.S. workforce. Eligible employment includes any position at a federal, state, or local government entity, or non-profit organization with a 501(c)(3) designation ..."

"Ironically, the current definition of public service is so broad that it treats identically situated borrowers very differently. ... Two nurses living in the same city with the same earnings and debt levels, one working at a for-profit hospital and the other at a non-profit hospital; two IT professionals working across the street from one another, each with the same income and debt levels, one working at a small non-profit, the other working at a small business. These individuals receive very different levels of government support for arbitrary reasons, because of how PSLF defines “public,” but not because they are engaged in different types of work. A clearer and stricter definition of public service would prevent such scenarios, treat similarly situated borrowers the same, and better Target incentives to fill shortages in specific fields."

"The disproportionate share of graduate and professional students using PSLF should be a wake-up call for policymakers. In fact, PSLF provides a big incentive to borrow more for graduate school. ... Students who might balk at the high price of a graduate degree that is not likely to lead to a large increase in their earnings now face much lower effective prices for the degree—even a price of zero. That is bound to allow schools to set prices higher than they otherwise would and offer degrees with questionable value in the labor market. ..."

https://www.brookings.edu/research/the-coming-public-service-loan-forgiveness-bonanza/

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If they make changes to PSLF, they need to have a grandfather clause for those currently doing it or else that would be massively unfair to them since they could have passed up on job offers in the private sector in order to do PSLF. 

avalon6 said:   If they make changes to PSLF, they need to have a grandfather clause for those currently doing it or else that would be massively unfair to them since they could have passed up on job offers in the private sector in order to do PSLF. 
  Agree on the grandfathering, but respectfully disagree with automatic assumption that private sector comp is always substantially better than public, esp. at early stage of one's career.  

tuphat said:   
avalon6 said:   If they make changes to PSLF, they need to have a grandfather clause for those currently doing it or else that would be massively unfair to them since they could have passed up on job offers in the private sector in order to do PSLF. 
  Agree on the grandfathering, but respectfully disagree with automatic assumption that private sector comp is always substantially better than public, esp. at early stage of one's career.  

  
I  never said it was. I'm talking about college graduates who factored in PSLF when weighing job offers and what company to work for. 

In reality the "big incentive to borrow more for graduate school" is counter-acted with a fairly limited supply of public service jobs. Frequently they are controlled by state, municipality or school district's budget, which are not exactly rolling in dough nowadays.

Have the first round of forgiveness happened yet? Also does this mean 10 continuous years of service?

needhelpplease said:   Have the first round of forgiveness happened yet? Also does this mean 10 continuous years of service?
  
Not yet. I also predict there will be a lot of fraud involved because all the form requires is a signature from the employer certifying their employment dates. That's it. 

avalon6 said:   
needhelpplease said:   Have the first round of forgiveness happened yet? Also does this mean 10 continuous years of service?
  
Not yet. I also predict there will be a lot of fraud involved because all the form requires is a signature from the employer certifying their employment dates. That's it. 

  
And its Fed Direct Loans only right?

Might consolidate my UHEAA loan one of these days but it's locked at 3.5 %. What're rates typically these days?

needhelpplease said:   Might consolidate my UHEAA loan one of these days but it's locked at 3.5 %. What're rates typically these days?
  
With the new Pay as You Earn Revised repayment plan, the government will actually pay the accrued interest on your loans, so the actual interest rate you pay will be drastically lower.

needhelpplease said:   Have the first round of forgiveness happened yet? Also does this mean 10 continuous years of service?
  First forgiveness cannot happen until about October 2017. It is not continuous and not really "10 years" it is 120 payments. If someone works 5 years, goes back to school, and then returns to work in a qualifying job for 5 years it's still forgiven. However, if they took out new loans in the middle before starting the payments on the others, there would obviously not be 120 qualifying payments on those at the time the first group would be forgiven. They've already talked about capping forgiveness at under 60k, and finally just started trying to tell people about the program who have loans, and providing a system to track it annually etc. I guess they figured not to do that from the start so they could get people doing the low pay work for awhile only to tell them half way in, hey btw, that job doesn't qualify. Its easier to do that half way through then when they should be discharged. What other surprises will there be in the next year? What will happen when they close the PSLF program to loans after _____?

Interesting, thanks for posting, tuphat.   

I started work as a police officer in Jan 2008 and have been working in local government ever since. In Jan 2018, I'll report back and let you guys know if this worked. I'm not holding my breath though considering I refinanced my student loans after getting out of college in 2005 and didn't try and make sure they conformed to this program. It'll be pretty sad if they deny me considering I'm exactly who this program was meant to help. I guess it will be like the time I was denied down payment assistance because I was actually good with my money and had actually saved it up before buying a house.

JavaCoder said:   In reality the "big incentive to borrow more for graduate school" is counter-acted with a fairly limited supply of public service jobs. Frequently they are controlled by state, municipality or school district's budget, which are not exactly rolling in dough nowadays.
  Note that 25% of US workforce is covered by definition.  And state spending increases are growing at a pretty steady 4% plus/minus average.  http://knowledgecenter.csg.org/kc/content/top-5-2016-state-spend...

One key thing to understand is that unless you're in a very low-paying job, if you take income based repayments or the standard 10-year term, your loans will probably be paid off after 10 years anyway, negating the Public Service Loan Forgiveness. You have to use one of those payment plans to qualify for the program.

This holds true for the average student loan of ~$35k making $50k/yr income based on their calculator (i.e. nothing winds up being forgiven).
https://studentloans.gov/myDirectLoan/mobile/repayment/repayment...

A high amount of loans and a very low income can generate potential loan forgiveness. Play with the calculator if interested. This matches the Brookings' study in the OP: "The median debt load of those enrolled in PSLF exceeds $60,000, and nearly 30 percent of PSLF enrollees borrowed over $100,000." Mainly benefiting people with high loan amounts, often grad school, who then took public sector job.

You can easily take this with retirement contributionions and other things that reduce your agi

tuphat said:   
JavaCoder said:   In reality the "big incentive to borrow more for graduate school" is counter-acted with a fairly limited supply of public service jobs. Frequently they are controlled by state, municipality or school district's budget, which are not exactly rolling in dough nowadays.
  Note that 25% of US workforce is covered by definition.  And state spending increases are growing at a pretty steady 4% plus/minus average.  http://knowledgecenter.csg.org/kc/content/top-5-2016-state-spend...

  
Total state spending does not directly correlate to state employment or salaries.

Comparing the 2011-2013 and 2015-2017 biennial budgets in WA they had spending increases of ~5% a year.   State employee salaries went up 1% a year and total employment went up 1.4%.   

In the sameperiod state population went from 6.8M to 7.1M up ~6% or 1.4% annual.

So while the state budget went up ~5% a year the # of state employees just kept pace with population growth and their wages grew much less than state spending % increase.

At the same time from 2011 to 2015 he average income in WA wnet from $50,280 to $54,010 or a 7.4% increase.   So the 3% that state employees got was less than half the state average.
ETA also the total employment went from 2.72M to 2.98M in the same period, a 2.3% annual growth.    So stat jobs didn't grow as fast as jobs in private sector for WA 
ETA2:   THe # of elementary, middle school and secondary teachers in WA actually went DOWN 4% from '11 to '15 and their wages were up only 2% total in that period.
ETA3 :   Total government employment in WA was up just 2% from '11 to '15 while private employment increased 10%.

OF course WA is just one example and I'm sure there are other states wheere state employeement and salaries went up more than the state budget increase.     

jarfykk said:   One key thing to understand is that unless you're in a very low-paying job, if you take income based repayments or the standard 10-year term, your loans will probably be paid off after 10 years anyway, negating the Public Service Loan Forgiveness. You have to use one of those payment plans to qualify for the program.
 

  
This. I have run the numbers for PSLF many times over the years, and yet keep going back to my trusted Extended Payment Plan. It just doesn't pencil out if you are in the upper middle class.

jarfykk said:   One key thing to understand is that unless you're in a very low-paying job, if you take income based repayments or the standard 10-year term, your loans will probably be paid off after 10 years anyway, negating the Public Service Loan Forgiveness. You have to use one of those payment plans to qualify for the program.
 


This is what I'm worried about. I think I consolidated my loans just based on a X year term. I figure that means I won't be qualified. I have no idea if what I was paying was more or less than what I would have been paying if I did an income based repayment plan. And, you're right, since my loans were just for a 4 year degree from a public school, even if I can get any forgiveness, the amount of principal I will owe in 2018 is less than $5,000. That's why if I decide to jump ship next year to a better paying job in the private sector, I won't lose any sleep over losing out on the loan forgiveness.

The best part of this is that most doctors making 250k+ get 90% of their loans forgiven under this program given the non profit/state university status of many many hospital networks.

Significant other and I are hedging our bets with this.  I'm paying my loans off, she went all in on getting them forgiven and is minimizing AGI to minimize payments until then.

jd2010 said:   The best part of this is that most doctors making 250k+ get 90% of their loans forgiven under this program given the non profit/state university status of many many hospital networks.

Significant other and I are hedging our bets with this.  I'm paying my loans off, she went all in on getting them forgiven and is minimizing AGI to minimize payments until then.

  Wouldn't they end up basically paying them off through IBR anyway given the high salaries?

beatme said:   
jd2010 said:   The best part of this is that most doctors making 250k+ get 90% of their loans forgiven under this program given the non profit/state university status of many many hospital networks.

Significant other and I are hedging our bets with this.  I'm paying my loans off, she went all in on getting them forgiven and is minimizing AGI to minimize payments until then.

  Wouldn't they end up basically paying them off through IBR anyway given the high salaries?

  
Not usually, remember first few years are residencies and lower salaries.  IBR is capped at 15% of your AGI beyond the poverty line.  The new pay as you earn is even lower at 10%.  If your loans are over about 1.2x salary, you can tread water without paying down the principal pretty easily. Once you get north of about 1.5x you even have negative amortization.  (source: I did it for like 3 years)

beatme said:   
jd2010 said:   The best part of this is that most doctors making 250k+ get 90% of their loans forgiven under this program given the non profit/state university status of many many hospital networks.

Significant other and I are hedging our bets with this.  I'm paying my loans off, she went all in on getting them forgiven and is minimizing AGI to minimize payments until then.

  Wouldn't they end up basically paying them off through IBR anyway given the high salaries?

  No, as the other poster mentioned, you have 5 years of residency and possibly another 2 as a fellow. Might only have 3 years with a good income. 

Just curious. Is the forgiven balance treated as income like it is with IBR?

tennis8363 said:   
beatme said:   
jd2010 said:   The best part of this is that most doctors making 250k+ get 90% of their loans forgiven under this program given the non profit/state university status of many many hospital networks.

Significant other and I are hedging our bets with this.  I'm paying my loans off, she went all in on getting them forgiven and is minimizing AGI to minimize payments until then.

  Wouldn't they end up basically paying them off through IBR anyway given the high salaries?

  No, as the other poster mentioned, you have 5 years of residency and possibly another 2 as a fellow. Might only have 3 years with a good income. 

  
Medical residences can get a forbearance deferral:
https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance

My student loans are about 15 years old now, but I'm only 5 years into repayment thanks to 10 years of graduate school.  While I was enrolled in school my student loans were automatically deferred.  Maybe I could have forced an income-based repayment to start this clock running, but the program didn't even exist most of taht time.  In any case, by the time I started repayment my income far exceeds the income-based-repayment schedule and my loans will be paid off after exactly 120 payments.   

JamesPolk said:   Just curious. Is the forgiven balance treated as income like it is with IBR?
  Nope. Specifically for PSLF, the forgiven balance is not taxable (by state or fed).

johnm4 said:   
tennis8363 said:   
beatme said:   
jd2010 said:   The best part of this is that most doctors making 250k+ get 90% of their loans forgiven under this program given the non profit/state university status of many many hospital networks.

Significant other and I are hedging our bets with this.  I'm paying my loans off, she went all in on getting them forgiven and is minimizing AGI to minimize payments until then.

  Wouldn't they end up basically paying them off through IBR anyway given the high salaries?

  No, as the other poster mentioned, you have 5 years of residency and possibly another 2 as a fellow. Might only have 3 years with a good income. 

  
Medical residences can get a forbearance deferral:
https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance

My student loans are about 15 years old now, but I'm only 5 years into repayment thanks to 10 years of graduate school.  While I was enrolled in school my student loans were automatically deferred.  Maybe I could have forced an income-based repayment to start this clock running, but the program didn't even exist most of taht time.  In any case, by the time I started repayment my income far exceeds the income-based-repayment schedule and my loans will be paid off after exactly 120 payments.   

  Under this program you want to start repayment as soon as possible, because you need to make 120 payments before you are eligible for forgiveness.

I wonder if the fact that SOME government employees are political hacks has anything to do with this.  There are broadly 2 classes of government employee, the civil servant, many of whom took a competitive teat for their job, and non-competitive employees who often fall into the political hack catagory.  While the test they took may not be the bast method of finding who is best qualified for the job, it is the method of preventing that the person doing the hiring doesn't just hire friends, relatives and people who spent time sucking up to their local political club leaders, contributing to the club, working on petitioning and other political activities for the club, to get rewarded with a job.  The other catagory is made up of people who don't take a test, and do all the political sucking up, contributing, and political work to buy themselves a job.  While there are non-competitve jobs at many salary levels, after all, someone who has been doing the political thing for years may have a son or neice who can't get a job doing anything, but is somehow qualified for the non-competitive job they found or created for him, the  professional jobs, like where a law degree is required, for example, where the person probably had the highest education expenses are political, non-competitive jobs.  The hacks in those jobs will have much greater benefit than the people in the competitive jobs who didn't get their jobs based on politics and who the know.  Of coarse, there are catagories, like the educated public health workers who got their jobs because of merit, and couldn't be excluded without this looking like a giveaway to political hacks, but, it seems that a larger percentage of political hacks will benefit, and to a much greater extent than non-political employees.

cows123 said:   I wonder if the fact that SOME government employees are political hacks has anything to do with this.  There are broadly 2 classes of government employee, the civil servant, many of whom took a competitive teat for their job, and non-competitive employees who often fall into the political hack catagory.  
  Hate to break it to you, but that's EVERY large organization.

I'm intrigued by this "competitive teat", details?

cows123 said:   I wonder if the fact that SOME government employees are political hacks has anything to do with this.  There are broadly 2 classes of government employee, the civil servant, many of whom took a competitive teat for their job, and non-competitive employees who often fall into the political hack catagory.  While the test they took may not be the bast method of finding who is best qualified for the job, it is the method of preventing that the person doing the hiring doesn't just hire friends, relatives and people who spent time sucking up to their local political club leaders, contributing to the club, working on petitioning and other political activities for the club, to get rewarded with a job.  The other catagory is made up of people who don't take a test, and do all the political sucking up, contributing, and political work to buy themselves a job.  While there are non-competitve jobs at many salary levels, after all, someone who has been doing the political thing for years may have a son or neice who can't get a job doing anything, but is somehow qualified for the non-competitive job they found or created for him, the  professional jobs, like where a law degree is required, for example, where the person probably had the highest education expenses are political, non-competitive jobs.  The hacks in those jobs will have much greater benefit than the people in the competitive jobs who didn't get their jobs based on politics and who the know.  Of coarse, there are catagories, like the educated public health workers who got their jobs because of merit, and couldn't be excluded without this looking like a giveaway to political hacks, but, it seems that a larger percentage of political hacks will benefit, and to a much greater extent than non-political hacks.
  Are you paid by the "hack"?

stanolshefski said:   
johnm4 said:   
 
Medical residences can get a forbearance deferral:
https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance 

My student loans are about 15 years old now, but I'm only 5 years into repayment thanks to 10 years of graduate school.  While I was enrolled in school my student loans were automatically deferred.  Maybe I could have forced an income-based repayment to start this clock running, but the program didn't even exist most of taht time.  In any case, by the time I started repayment my income far exceeds the income-based-repayment schedule and my loans will be paid off after exactly 120 payments.   

  Under this program you want to start repayment as soon as possible, because you need to make 120 payments before you are eligible for forgiveness.

  
Would not have helped:  https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellatio... qualifying monthly payment is a payment that you make

  • after October 1, 2007;
  • under a qualifying repayment plan;
  • for the full amount due as shown on your bill;
  • no later than 15 days after your due date; and
  • while you are employed full-time by a qualifying employer.

You can make qualifying monthly payments only during periods when you are required to make a payment. Therefore, you cannot make a qualifying monthly payment while your loans are in

  • an in-school status,
  • the grace period,
  • a deferment,
  • a forbearance, or
  • default.

Your 120 qualifying monthly payments do not need to be consecutive.

johnm4 said:   
stanolshefski said:   
johnm4 said:   
 
Medical residences can get a forbearance deferral:
https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance 

My student loans are about 15 years old now, but I'm only 5 years into repayment thanks to 10 years of graduate school.  While I was enrolled in school my student loans were automatically deferred.  Maybe I could have forced an income-based repayment to start this clock running, but the program didn't even exist most of taht time.  In any case, by the time I started repayment my income far exceeds the income-based-repayment schedule and my loans will be paid off after exactly 120 payments.   

  Under this program you want to start repayment as soon as possible, because you need to make 120 payments before you are eligible for forgiveness.

  
Would not have helped:  https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-serviceA qualifying monthly payment is a payment that you make

  • after October 1, 2007;
  • under a qualifying repayment plan;
  • for the full amount due as shown on your bill;
  • no later than 15 days after your due date; and
  • while you are employed full-time by a qualifying employer.

You can make qualifying monthly payments only during periods when you are required to make a payment. Therefore, you cannot make a qualifying monthly payment while your loans are in

  • an in-school status,
  • the grace period,
  • a deferment,
  • a forbearance, or
  • default.

Your 120 qualifying monthly payments do not need to be consecutive.

  
You need to consolidate your loans right after graduation so that repayment starts immediately and have your payments start qualifying for PSLF. Otherwise, you will be under a 6 month grace period and the clock won't start until that's over. 

jagec said:   
cows123 said:   I wonder if the fact that SOME government employees are political hacks has anything to do with this.  There are broadly 2 classes of government employee, the civil servant, many of whom took a competitive teat for their job, and non-competitive employees who often fall into the political hack catagory.  
  Hate to break it to you, but that's EVERY large organization.

I'm intrigued by this "competitive teat", details?

The proposal doesn't apply to "EVERY large corperation",so I don't know what your point is.  Salaries paid for by the federal, state or local governments are paid for by everyone who pays taxes therein.  Giving public jobs to certain preferred people is another way that the government distributes tax money based on patronage, or, as someone aptly calles it "The friends and family plan".
A "competitive test" for a civil service job may be a general test or be more specialized.  Everyone who has the qualifications (experience, education, any other general critera) can apply, based on whether the test is open competitive (for anyone) or promotional, and take the test, and be placed on a list according to their score (plus possibly additional credit for senority or military service).  The interviews have to take the highest people on the list, so they can't hire based on the person being someone's friend, relativer, a person who made contributions to a campaign or political party, ect., which is what happens with many of the jobs for which there are no tests.

kmsandrbs said:   
JamesPolk said:   Just curious. Is the forgiven balance treated as income like it is with IBR?
  Nope. Specifically for PSLF, the forgiven balance is not taxable (by state or fed).

  
Wow That's a big difference. 

The interesting thing is that if you enter IBR immediately after graduation and get a lower paying entry level qualifying job for 3 years, and therefore can live like a student and use your retirement options, you can easily get to 0.00 payments while in IBR, and the government pays the interest on your subsidized loans, essentially freezing them. So the only thing getting larger is any unsubsidized loans (wonder why they stopped doing subsidized for grad school?). Then you have 7 years left, and even if you did make the big bucks immediately, you still got nearly 3 years of regular payments "free". Is it better to get the good job from the beginning? Good luck on that, and maybe not depending on the stress and total debt load. If you really can't pay (ie take the full saver's credit) for 10 years through AGI, then you pay nothing. Repayment months won't include any kind of deferment or forbearance.

infogirlgeek said:   The interesting thing is that if you enter IBR immediately after graduation and get a lower paying entry level qualifying job for 3 years, and therefore can live like a student and use your retirement options, you can easily get to 0.00 payments while in IBR, and the government pays the interest on your subsidized loans, essentially freezing them. So the only thing getting larger is any unsubsidized loans (wonder why they stopped doing subsidized for grad school?). Then you have 7 years left, and even if you did make the big bucks immediately, you still got nearly 3 years of regular payments "free". Is it better to get the good job from the beginning? Good luck on that, and maybe not depending on the stress and total debt load. If you really can't pay (ie take the full saver's credit) for 10 years through AGI, then you pay nothing. Repayment months won't include any kind of deferment or forbearance.
  
I believe you can make as much as $60k gross income and still qualify for a $0 payment if you max out all the ways to reduce your AGI (IRA, 401k, HSA, etc.)

This is not new, the White Coat Investor has a look back at articles which criticized those who maximized the program: http://whitecoatinvestor.com/tag/public-service-loan-forgiveness...

There needs to be a provision for professions like medicine and law to have a longer time frame for forgiveness. For example, $60,000 every ten years seems fair. Remember that many public sector employees have 401k, 457, and a contributory defined benefit retirement plan. So you could contribute at least $36,000, plus the contribution to the defined benefit plan, max out on FSA and HSA, and lower your $100,000 Deputy DA salary down to $55,000 or less. 



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