Should my student take out subsidized loans in the hopes of debt forgiveness?

What will be interesting is - if loan forgiveness comes, how will it look? Will it have an income test or a tenure test (how old it is).

We’ll be seeing a lot more loans - because guess what - a lot of people are about to start college and about to apply for college - and all are banking on fat 529 plans - and while many have adjusted to conservative investments, not all are in age based plans.

So I imagine there will be families not wanting loans forced into them - and others still wanting that full price school who will now have to take loans - or larger loans.

And at much higher interest.

So the entire lending game is about to get crazy.

And the top schools - perhaps - will see less apps in the upcoming year if this volatility continues.

I repeat - borrowing in hopes of a freebie - not a good move. It’s not free to borrow. In addition to interest, there are hefty origination fees.

1 Like

Well, in this case there wouldn’t be interest for another four years. And the fees are fairly low, around 1%. That could be recouped in less than a year with treasury notes or a simple bank CD.

There was another thread to debate the merits of loan forgiveness. Here isn’t the place. But in case it affects the OP’s decision I’d just point out that folks in the federal government are fully capable of looking at a calendar and weighing the various incentives created by a given policy. The executive branch can opt to make forgiveness only retroactive if that meets their policy goals. If they choose not to do so, they are implicitly (and it might even end up being explicit) accepting that the program will act as an education grant for new borrowers.

Had a reconciliation bill passed with a grant covering the first $10k of college, I doubt anyone would have had any moral qualms about folks taking advantage. OP, I’d view it that way when deciding what to do.

3 Likes

Isnt this Similiar to the covid loans taken out ( and fogiven) by some of the most elite schools in the nation, including Harvard and Sidwell Friends? I think Harvard eventually gave its loan back after poor publicity about schools with $50 billion endowments getting free government money. If that is the way the law is written, I am sure their lawyers found it both legal and ethical. Maybe not smart, however, given the press Harvard endured.

2 Likes

I was furloughed and fully paid - by the feds - if i stayed on the payroll past x date.

Yes, it saved me - but it just bothered me.

Anyway, @politeperson brings up a fair point - as an investment vehicle, you can take the subsidized loan, let it earn interest for 4.5 years and then pay it back since the feds pay the interest during that time. Anything you earn is earning.

I do that with my mortgage - invest at a higher rate - but that’s still intending to pay back the loan. But there is some opportunity there for sure.

Somehow my daughter qualified for a subsidized loan, no interest during college, and then graduate school.
There was no red tape - we had filled out the FAFSA and CSS profile, and were awarded/rewarded with that loan. My daughter handled the initial setup, but nothing more than any other installment account.

We’ll pay it off in full once due, when the principal will be less in real dollars, and in the meantime have the principal invested, leaving us with 9 years of accrued earnings.

I pay my taxes when due, thus have no qualms about participating in any tax deferral programs, tax credits, or subsidies (such as solar credits) that is legally available to me — and anyone like me.

2 Likes

There are no longer any subsidized Direct Loans for grad school. When did your daughter get this subsidized loan for grad school?

@DigitalDad

Or do you just mean her undergrad loans did not accrue interest during their deferral while,she was in grad school!

No, awarded as college freshperson - but interest free status continues on thru grad school.

There ARE forms for that but it typically is automatic as the grad school starts reporting her enrollment with SSN.

Some rational reasons have already been raised. If the OP’s child is considering a public service career, then there is more than a good chance the student could get some or even all of the student debt forgiven. There is no rule about only poor teachers getting PSLF, it is available to all in a public service. there was just an article yesterday about a professor at DU (so not a low income person) getting $100k in loans forgiven, plus a refund of $15k that she’d overpaid on her student loans after the recalculation under the new PSLF program (she started paying in 2010, but didn’t do it correctly so only got credit for payments from 2015 on; new program recalculated and included all those payments from 2010 and so she got $15k as a refund for payments made in last 3 years). Was the program aimed at forgiving loans of professors making large salaries? Probably not, but she ended up with a good deal of her education for free.

Doctors, nurses, dentists can get forgiveness for doing what we want them to do - rural medicine, low income clinics, etc., but they might not be low income themselves, might have investments, might have inherited money. Firemen can make a good income, but they are still in public service. Lifeguards? Yep. There was even a case where the interns working for the ABA applied for loan forgiveness because they worked for the ABA and that’s a 501c3 organization. Not who the law was written to benefit, but that’s how it reads.

2 Likes

The OP has received plenty of feedback. I see no value in keeping open, since the number of flagged posts are exhausting the moderators’ rime.

1 Like