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Paying your student loans first

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Established Contributor

Paying your student loans first

I'm not sure how I feel about this one there is a proposal to have student loan payments taken out of a person's paycheck like taxes.

 

 

https://www.marketwatch.com/story/prominent-republican-wants-to-take-student-loan-payments-out-of-yo...

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Message 1 of 10
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Established Contributor

Re: Paying your student loans first

Not cool.
Also, it doesn't address the real problem.
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Message 2 of 10
Contributor

Re: Paying your student loans first

I don't see it bad as an option (Let's be honest, we have not few people that waste money and if you take the money out of their paycheck they would adjust cutting frivolous spending) but if it becomes a must then we would have a problem, as you said, it doesn't attack the problem but it would help some people paying and would reduce the impact on credit scores.
Message 3 of 10
Frequent Contributor

Re: Paying your student loans first

If it were pre-tax dollars, then I may be willing to sign up.




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Message 4 of 10
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Re: Paying your student loans first

I had mixed feelings on the overall concept. It's going to come out of our paycheck either way, except the only people that it could affect most are those who don't pay.
But the reality sets in...the government still defaults to that standard repayment plan when you get out of school. That same plan that sends a large portion of students into debt unnecessarily because they could have been on an IDR plan if they had only known their payments had to be so high. So no, passing the buck to the youth without changing the existing problems is not okay.
Additionaly, when students default it's going to get taken out of their paycheck eventually anyway. They already have this power in those circumstances, no extra court time needed. They don't need extra access to our paychecks. And anyone who knows servicers is aware they definitely do not need this field day to make "accidental" mistakes that they will be reluctant to fix. In the meanwhile, people's lives will be ruined. It's one thing to have an error in what you owe, and a completely different thing to have an error in the money people need to live on. The same way they think it's cute to take away people's professional licenses until they pay what is owed (with what job??).
These politicians need to grow up and face the real issues in the looming student loan debt or the generations that owe are just going to continue to be haunted by it. They should be ashamed of themselves.



Message 5 of 10
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Established Contributor

Re: Paying your student loans first


@Workin4abetterFICO wrote:

If it were pre-tax dollars, then I may be willing to sign up.


I might go in this case, but I highly doubt anything like this would be part of it. Most people can't even take advantage of taking the interest off the top because of all the stipulations. I seriously doubt they would consider allowing you to take principal and interest off the top

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Message 6 of 10
Community Leader
Valued Contributor

Re: Paying your student loans first

"Most people can't even take advantage of taking the interest off the top because of all the stipulations. I seriously doubt they would consider allowing you to take principal and interest off the top"
What do you mean the interest off the top?



Message 7 of 10
Frequent Contributor

Re: Paying your student loans first


@Sabii wrote:
"Most people can't even take advantage of taking the interest off the top because of all the stipulations. I seriously doubt they would consider allowing you to take principal and interest off the top"
What do you mean the interest off the top?

I think what they're saying is that currently interest is tax-deductible provided you make under a certain income threshold. But if payments were taken out of a paycheck pre-tax, then both interest and principle would essentially be tax-deductible.

 

With income phase-outs for deductibility, implementing such a scheme would be a payroll nightmare...

 

However, I've read recently that payments via payroll deduction is how the UK student loan repayment system works, and payments are capped at 9% of income, and loans are cancelled after 30 years or the borrower dies or becomes disabled. Needless the say, this sort of system isn't unprecedented.

 

https://thecollegeinvestor.com/13871/student-loans-different-uk-vs-us/

Message 8 of 10
Community Leader
Valued Contributor

Re: Paying your student loans first

Ahh, ok. Yeah the interest deduction doesn't really help people on IDR plans that much. And they are really biding their time about paying legislation saying that the forgiven amount of non-PSLF plans is not taxable income.
So I've been reading up more on this and it's actually complicated.
First, it's a complete rehaul of the student loan repayment system. It's not optional. They would be getting rid of all 14 existing plans and only have two. One would be paying all loans in 10 years. The other is Income-based and is capped at 10% of (federal loan definition of) your discretionary income. Both plans are only 10 years! I can't believe it but I'm actually on board with that. I did notice that my payments would be going up significantly even on the Income-based plan.
However, I still don't like the idea of making it mandatory that this money be taken out of everyone's paycheck. I think student loans are already intrusive in collecting them (taking from people's social security checks seems extreme to me), and this will only give them one more power. And by them, I mean the Servicers. The government hands it off to them and admits they know that they mismanaged the accounts, yet does not hold them responsible. Now imagine what would happen if they accidentally took double out of someone's paycheck. This system also disproportionately puts lower income people at a disadvantage. I don't like it.
They also want to revamp the FAFSA to reduce it to 24 questions. I've never had problems with it, but I think this is still an idea that may benefit students.
It will be interesting to see how this turns out.



Message 9 of 10
Moderator Emeritus

Re: Paying your student loans first

Automatic repayment plans that are based on income hits everyone the same realistically, though maybe there should be some floor for uncollectable much like the IRS has for tax liens.

 

Also suggesting there are going to be errors in the system is frankly a red herring: we've done automatic payment for more than a decade in other systems, and even on this forum we've had basically zero complaints on it.

 

It's seriously a solved problem, and as such isn't worth even worrying about... if it did occur there's plenty of legal redress.

 

That all said I think student loan handling needs some re-work to other's points I'm just not sure if we're capping payment and duration that there shouldn't be some tradeoff.

 

On the flipside there will probably be some abuses either way, vis a vis I might as well take student loans when I get to undergrad if interest rates stay any sort of similar, and then since I will be making very little chasing a doctorate for 5-7 years and capped at 10% of my income, well there will be others doing the same.

 




        
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