I personally am against student loan forgiveness. However if it occurs, one should be able to legally avail themselves of it without moral condemnation. Most posters take advantage of the home mortgage interest deduction without reservation, though that government subsidy favors the well-off.
But it hasn’t happened yet- that’s the issue some of us have. You’re taking on debt hoping/knowing/expecting forgiveness-- which may or may not pass, or may or may not include the OP’s kid in the pool of those impacted, or the OP’s kid may or may not choose a profession which is covered, etc.
But that is a risk people can take. They understand that there may never be student loan forgiveness. People take risks every day. Sometimes they pan out; other times not.
Now taking out loans you cannot afford to pay/going to a higher cost school with loans making up difference, each with an eye toward forgiveness doesn’t make sense.
You don’t believe there is a difference between dutifully paying off your mortgage every month- and then getting a tax deduction; vs. taking out a loan and essentially defaulting on it-- because the federal government is going to forgive it? I believe there is a difference between a subsidy/tax break on various things vs. going into debt with fingers crossed that there will be no penalty for defaulting.
I think OP has in mind the potential for loan forgiveness through executive action, not legislation. This has been widely reported as likely to happen in some fashion as early as this summer. Details are unclear but most of the reporting suggests amounts in the range of 10k, for people below some income cap, will be forgiven.
My understanding is that OP is considering taking the loan, setting aside the funds, then repaying the loan if that forgiveness doesn’t happen.
This doesn’t seem like a bad plan to me. It is no different from what many CFOs did with PPP loans when administrative rules on forgiveness were still being written.
Honestly, I don’t see any financial “risk” if the alternative is paying cash. We’re not talking about choosing, say, a private school over a public school, where someone is opting for a higher cost education because they are hoping for loan forgiveness. This family is already planning to pay X this fall. If loan forgiveness doesn’t pan out, the family simply ends up paying the same X, plus $55. The only downsides here are the $55 loan origination fee and a few minutes of paperwork.
If the OP’s student is planning on a public service career, the loan forgiveness might already be there. The changes that have happened recently are to make PSLF easier to qualify for and it is working better now, even going back and giving borrowers credit for years of payments (or deferrals) they should have gotten credit for and didn’t because of paperwork snafus.
My daughter took the subsidized loans and banked what she didn’t need for living expenses while in college. She needed that money to get started when she got a job just after college to buy a car and move to the city of her new job. Not every job comes with a big signing bonus and moving expenses. It was good financial planning on her part.
But I’m thinking OP will not qualify for a subsidized loan. Not sure if getting an unsubbed loan would be worth it, especially when the loans go off ‘pause’ and start accruing interest again.
I think the gist of the question is, and I’m sorry for the verbiage, but would it be smart to borrow for the sole reason of the possibility of legal theft.
Then we better hope that whatever form of student loan forgiveness is enacted is so narrowly drawn as to exclude such a scenario. If it is not, then taxpayers do have a right to avail themselves of any lawful scheme to maximize their funds and minimize their taxes. That is what being a legal option means. If you do not like it, vote against it
I agree that there are legal, ethical, and policy components to the topic of student loan forgiveness but that isn’t the gist of the poster’s question. The former considerations (and subjective labels such as “theft”) derive from people injecting them into a pretty straightforward question. The poster used the terms “strategies”, “investments”, “529”, “loan paperwork”, “subsidized”, “frictional factors”, etc., and not once did he or she suggest any interest in reading a morality play. The question he posed was a financial planning one.
I’m sure there is a CC thread where folks can vent about such things as the burden that student loan forgiveness would place on taxpayers, specifically, and the moral decay of society, generally, but this isn’t that thread.
That’s like saying you can be wealthy, start a business, declare it bankrupt, and then buy it back later for cents on the dollar. And it’s happened.
Sorry, it is the gist of the question. There is no rationale reason to ask about borrowing and waiting for loan forgiveness.
And this is inherently the issue with a program like this - because OP and others thinking similarly - may derive a benefit from something - sort of like an extra $5K scholarship. Or, they might be held to the terms as they should be and end up costing them unnecessary interest.
I don’t fault OP for thinking about this and even taking a chance and doing this and hoping that for that specific outcome.
But my answer is - no they shouldn’t take out a subsidized loan in hopes of debt forgiveness.
The Mods are pretty responsive in taking posts down (or locking them) when they violate the TOS. Or putting threads on slow mode when the dialogue gets heated. I’m not sure any of us get to decide when a post is off-topic.
If we were, I hereby decree that any post which asks “Is it worth paying full freight for Wesleyan when my kid could go to Southern CT State for free”, which devolves into a discussion about legacy and athletic preferences, or why SAT prep is inherently elitist- permanently off-topic!!!
At some point if there is some type of general student loan forgiveness, is anyone taking advantage of it guilty of “theft?” Or just certain people? If its not everyone, how will the determination of being a thief be made?
If the government decides for whatever reason to grant general loan forgiveness, it would not be theft in the legal sense as long as there was not fraud when the loan was originally obtained or when the forgiveness applied for. What I object to is applying for a loan (not a grant) which means I am expected to pay it back on the hopes that it will later be forgiven on a moral basis (also on a policy and moral hazard basis).
Think of this analogy. I buy something from a small business using a check from a closed account even though I have a credit card that could cover the purchase. I do this because I am thinking the small business probably doesn’t have the resources to pursue this and already “budgets” for bad checks. If they do pursue me, I will just pay the bill and say "sorry, stupid mistake/wrote from the wrong checkbook. This is not a wild hypothetical. I think most people would condemn this type of premediated action where you receive goods and services on the hope you don’t have to pay.
“ With high gas and food prices, Biden could decide that wide-scale student loan forgiveness isn’t worth the political capital if inflation continues to climb between now and the midterm election. If this happens, Biden could still focus on targeted student loan cancellation. Likewise, the student loan payment pause ends on August 31, 2022. Critics of broad student loan relief say that restarting student loan payments beginning September 1 will help temper inflation, as student loan borrowers will have less disposable income to spend in the economy.”
Agree with the above. So if the post is not addressing the OP, please refrain from posting about the moral decay in society, the appropriateness of loan forgiveness, or anything not answering the OP in this thread, and find the more appropriate thread. At a minimum, any further posts that do not comply are subject to deletion without notice or comment.
Interesting discussion of legal vs ethical actions. I believe this plan is legal but also think it may cross a line on ethics. I will say, the same plan did cross my mind with my third child about to start college. Two of my kids have subsidized loans that I was planning to help pay off. We currently put those plans on hold because those loans are not accruing interest. Is that wrong to do? In fact, part of our waiting is to see if loan forgiveness will happen. Is that wrong? I decided not to take out a loan for my youngest child for the sole purpose of hoping it will be forgiven. I believe there is a good chance it will be forgiven, but an active action (taking out a new loan) to capitalize on it seems different to me than a passive action (not paying back a current loan).
If I were to rank all financial planning maneuvers (ie., grandparent not withdrawing from 529 till mid sophomore year to avoid extra income for student, shifting ownership of a 529 to one child so a second child gets better aid, and many other situations that have nothing to do with college such as backdoor IRAs), not sure where this maneuver would rank on the ethics scale. Personally, I think any loan forgiveness (helping past loans) should be coupled with some relief for future students (maybe lower, or no, interest rates) and therefore current students will benefit as well in a different way.
I think it definitely crosses an ethical line because you’re essentially taking out a loan you expect others to repay who didn’t agree to take on the debt in the first place AND there’s no tax liability to the borrower. People who win the lottery have to pay taxes on their winnings! How is this any different?
On the legal side, if you can qualify for the loan then it’s your decision. It’s debt. If you can afford to pay it off if forgiveness doesn’t happen then I guess if you can make more on the $10,000 you freed up for investment than the interest you’ll pay on the $10,000 you borrowed it might be worth the aggravation?
You’re also assuming loans taken out this year or next year will be included in any forgiveness program.