Title basically. I am a parent of a new freshman entering this fall. The cost of their education greatly exceeds any subsidized loans available and I see that the maximum subsidized loan is only 3500 per year which isn’t much. I don’t think I would go through the hassle for this student for the marginal benefit of saving interest on 3500 dollars per year but I might be willing to do it if there is the possibility of debt forgiveness for this student in future periods.
Anyone have a thought on the possibility of this or other strategies if any related to upcoming policy / legislation benefits?
I assume for parents / students that have paid cash in the past, that forgiveness or refunds are probably off the table.
Please don’t take loans out unless you have every intention of paying them back. Assuming loan forgiveness just isn’t a good plan.
If you don’t need the loans, don’t take them. If you need them, then take them, but assume you will be paying them back.
Do you know anything about the frictional factor for student and parent for obtaining a subsidized loan? Like how rigorous is the application process? And what kind of “loan counseling” process does the government require for these loans either upon receipt or any exit process when the student graduates.
Thanks for your other advice.
Have you applied for financial aid yet? (If not, it may be too late as financial aid budgets may be depleted.) Were you offered subsidized loans? (If so, you have passed the “frictional factor”, whatever that is.)
The only current loan forgiveness program approved by Congress is the PSLF which is mostly for those that go into public service or work at a non-profit for 10+ years.
(The ToS preclude us from discussing future legislation or political orders.)
Agreeing with @thumper1: the possibility of debt forgiveness is a very very flimsy straw on which to build a financial plan. Relevant factors include the political nature of debt forgiveness (making it at the mercy of each incoming administration) plus the evolving nature of which debts, for how much, and what reasons would be eligible.
Whatever hassle there is in getting the loan, there is much, much more in qualifying for loan forgiveness. Look at how difficult it has been for the students who faithfully complied with the 10 year public service student debt forgiveness program to get their debt forgiven, how hard it was to get debt forgiveness for students who were clearly, objectively defrauded by approved programs, or the hassles the people eligible for the ‘Total and Permanent Disability’ forgiveness have faced.
It may feel as though 'everybody else is getting free money, why shouldn’t I get some?- but 1) almost always once you dig down it’s usually not as many people as it sounds like, and 2) they are typically getting less than the headlines indicate.
tl;dr- there is no such thing as a free lunch
I know a few people who have taken out loans/had kids take out loans who have the money to fund college without the loans based on current discussions/pressure for student loan debt forgiveness. Its not a situation where they can afford $x/year for college but are signing up for $x+y/year college costs with the $y coming from loans. They are viewing it like an investment. If there is debt forgiveness, the return is good. If not, they will end up paying the interest (they would have paid the principal in any event even without the loans).
You’ll be surprised how many strings will be attached if/when a loan forgiveness program is passed.
I know MD’s, lawyers, public employees who thought they qualified for various programs only to learn how specific and narrow the actual programs are.
As far as I can see the only “bet on it” programs are the Service Academies (free) and ROTC (a little more complicated but a good value for a kid who wants to be a military officer). Anything else gets harder to actually qualify even if you are in a profession which technically qualifies.
Don’t take out a loan for which you don’t have a plan on how to repay.
Loans in a modest amount of $10k might be a good strategy.
Taxpayers make decisions every day based upon what the government chooses to subsidize at that time ( such as home mortgages). If that applies to student loans in the future, it is a reasonable strategy to take advantage of that policy.
So you are saying that you want to plan on a situation where I pay for your kid’s education? How does that sound?
If your kid goes into some public service where it benefits everyone, ok, part of paying for a better society. But hoping for general forgiveness is pretty much hoping that premediated theft will work out.
Yes, but nobody knows the who/what/when of forgiveness.
For-profit colleges which suck kids dry of their Pells and loans and leave them without an education or skills? Seems to be general support for forgiveness. Taking out loans for a third tier private because you don’t want your kid at the public U which is affordable because “it’s just like HS”? That category of debt won’t be too popular.
I have a friend who is an MD who participated on one of the federal forgiveness programs for med school debt. You’d think someone smart enough to graduate from med school, complete a residency, etc. should be able to figure out his forgiveness plan. But it’s not that simple. And they don’t just write you a check the day you complete your residency… and there isn’t a master list of “this hospital qualifies and this one doesn’t”- it depends on several factors.
I can’t imagine that undergrad loan forgiveness is going to be like getting a refund from Amazon…
If one’s student is young enough that interest accrual will be suspended for several years while they complete college, it is not a bad strategy to take the loan and see what happens in the next 2 years. If forgiveness does not occur, the loan can simply be repaid early.
While I wish any student loan forgiveness were narrowly drawn and minimal, I think that is unlikely to be the case in the future.
I don’t know your personal finances, but someone whose parents view taking out a student loan as a hassle and has the option of paying cash for higher education usually does not qualify for a subsidized loan, let alone the maximum subsidized loan.
I think that the idea of taking out a student loan in the hopes of benefiting from debt forgiveness has probably occurred to many parents. It has even occurred to me. Some small number of students and parents might even do it.
However, taking out a loan in the hopes of benefiting from debt forgiveness is almost certainly a very bad idea. Debt forgiveness might not happen. If it happens, it will probably be limited to a small amount of repayment per person. There will probably be “strings attached” to any debt forgiveness plan. You might not qualify. Any plan that occurs in the near future has at least some risk of being sufficiently unpopular that future governments will avoid doing the same thing again.
Encouraging more parents and students to take out more loans is also most likely a bad idea.
Taking out loans with a fixed interest rate in the hope that inflation will reduce the true value of the loans might be more hopeful. However, this only works if the money that you borrow is invested in something that has solid long term value (gold, real estate, an MD, …). This is an area to be very cautious.
The loan counseling is just sections of reading and multiple choice questions to answer.
This is worth considering, yes. Downside risk is relatively small, just a bit of time and a small loan fee. Upside could be significant. I don’t think anyone here can tell you the details of what forgiveness through executive order would look like. You’ve probably read all the reporting.
Obviously, I wouldn’t take a loan counting on forgiveness but it doesn’t appear you’re doing that at all.
Some of the comments here seem unnecessarily harsh to me. We don’t accuse folks taking advantage of the AOTC, upper income taxpayers able to maximize the benefits of 529s, or businesses taking advantage of paycheck protection program loan forgiveness of theft. I don’t see how this is any different from the sort of financial planning involved in those decisions.
Anyone who thinks that taking out a loan expecting the government to forgive the loan has not been given good advice. It is irresponsible and creates the worst kind of moral hazard whereby bad behavior is subsidized, thus creating even more bad behavior. Additionally, those who did not go to college, and those that worked hard to put themselves through college, even if it was community or state schools that they could afford, will feel like chumps having paid for those who game the system, and the horrible politicians who push this are merely buying votes with other peoples money. Parents who saved and sacrificed to make sure their kids graduated debt free (I’m one of those) will especially be upset. If you need a loan, make sure it is for a reasonable amount that you will be able to pay back with future employment when you graduate. That level of responsibility will provide benefits and carry throughout your life.