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Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Nov 16, 2020 12:26 pm
by Nony
Re: recertification - I think technically borrowers are supposed to recertify if their income “changes significantly” or the like, which includes going up as well as going down, but in practice there’s nothing that makes you do it until the next actual deadline comes round. So it’s there for people whose incomes plummet and need to get their payment reduced sooner than the next deadline, but no one is going to get dinged for not reporting an increase in pay before they have to. For instance the recertification doesn’t ask when in the last year your income changed. (And I’m in the same boat where I had a recertification deadline in April, they had notified me to recertify, then the moratorium was put in place and the deadline got lifted. They’re supposed to let me know when I need to get it done by, now.)

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Nov 16, 2020 12:27 pm
by Nony
Johannes wrote:
Mon Nov 16, 2020 12:21 pm
Hey_Everybody wrote:
Mon Nov 16, 2020 10:28 am
So is that guy saying that even if you just did 25 years on REPAYE that there is actually no tax bomb? If true, seems like TLS was giving people a lot of shitty advice back in the day
Yes it’s only taxable to the extent you have net worth. I’ve said this for years now. No one understands the tax bomb properly.
That’s not what the thread says, Johannes. The guy is arguing that loan forgiveness is not taxable regardless of your net worth.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Nov 16, 2020 12:28 pm
by Nony
Johannes wrote:
Mon Nov 16, 2020 12:23 pm
Story wrote:
Mon Nov 16, 2020 11:41 am
I guess no one has gotten to the end of IBR and PAYE to actually find out whether the forgiven amount is taxed.

Anybody who commentates on this issue is essentially making a prediction about how the IRS and courts will interpret the tax code, right? I don’t know if there is a definitive “correct” answer to the question of whether IBR and PAYE forgiven amounts are taxable.
The “tax bomb” applies to all forgiven debts not just student loan debt. Plenty of case law looking at this application to non student loan debts, which is binding precedent.
Are you planning to have no net worth when your debt is forgiven, Johannes?

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Nov 16, 2020 1:08 pm
by BlendedUnicorn
Nony wrote:
Mon Nov 16, 2020 12:27 pm
Johannes wrote:
Mon Nov 16, 2020 12:21 pm
Hey_Everybody wrote:
Mon Nov 16, 2020 10:28 am
So is that guy saying that even if you just did 25 years on REPAYE that there is actually no tax bomb? If true, seems like TLS was giving people a lot of shitty advice back in the day
Yes it’s only taxable to the extent you have net worth. I’ve said this for years now. No one understands the tax bomb properly.
That’s not what the thread says, Johannes. The guy is arguing that loan forgiveness is not taxable regardless of your net worth.
fwiw he published a paper on the topic and the argument is much more normative than his twitter thread suggests. student loan relief *should* not be taxable, and not that based on current law it is not (though he argues that treasury has the authority to make it so:

https://papers.ssrn.com/sol3/papers.cfm ... wnload=yes
Assuming the anti-Trump wave doesn’t leave the
Democrats controlling both houses of Congress,
Treasury may have to consider acting unilaterally to
exclude COSD income created by IBR, PAYE, and
REPAYE. While its legislative authority is weaker
than Treasury might prefer, there is nonetheless
sufficient authority for it to act.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Nov 16, 2020 1:13 pm
by BlendedUnicorn
reading further, it strikes me as pretty dubious. He says that income based repayment plans should fall under the "qualified scholarships" exception on the theory that, unlike PSLF, there's no "quid pro quo." As an alternative, he also makes the Johann argument,
Even if section 108(f) does
not apply, section 108(a)(1)(B) could — COD income is excluded if the taxpayer is insolvent when
the debt is canceled. That was one reason that
Treasury excluded the COSD income in the Corinthian case.
Insolvency is defined as the excess of liabilities
over the fair market value of assets.50 The determination is made immediately before the cancellation,
and any exclusion is not greater than the amount of
the insolvency at that time.51 The upshot is that, to
have a full exclusion for the COSD income, the
borrower must be insolvent by at least the amount
of the forgiven debt. If a borrower has $50,000 in
student debt forgiven, and immediately before the
forgiveness the excess of his liabilities, including
that debt, over assets is only $1,000, then there
would still be taxable COSD income of $49,000.
If that's right, then I guess it supports the run up your debt as much as humanly possible approach.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Nov 16, 2020 1:14 pm
by Nony
yeah, I saw that, and had the same reaction to it. I mean, I'd like him to be right! But I think there's a reason no one else has been arguing this yet. (Partly just that it's not going to be a live issue for a while still, of course.)

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Fri Dec 04, 2020 8:53 pm
by Johannes
Trump extended another month grace period

https://twitter.com/mstratford/status/1 ... 20672?s=21

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Sat Dec 05, 2020 12:15 am
by Story
Johannes wrote:
Fri Dec 04, 2020 8:53 pm
Trump extended another month grace period

https://twitter.com/mstratford/status/1 ... 20672?s=21
Still counts for PSLF credit?

Edit: yes, seems to be the answer.

“Non-payments will continue to count toward the number of payments required under an income-driven repayment plan, a loan rehabilitation agreement, or the Public Service Loan Forgiveness program.”

https://www.ed.gov/news/press-releases/ ... -emergency

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Wed Jan 20, 2021 12:30 pm
by Story
https://www.washingtonpost.com/educatio ... extension/

Should count for PSLF.


“But PSLF is not perfect. Out of 179,371 borrowers who applied to have their debts erased, only 3,469 have been discharged, according to the September 2020 PSLF Report by the U.S. Department of Education.”

https://www.foxbusiness.com/money/seeki ... -roadblock

Hard to imagine that only about 2% did their PSLF correctly. I wonder if the low % is because borrowers actually got it wrong or if DOE is being persnickety in applying the PSLF rules.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Wed Jan 20, 2021 1:36 pm
by Nony
Probably both?

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Wed Jan 20, 2021 1:44 pm
by Story
Right. I’m sure both happened. I just wonder which more largely contributed to the low %.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Thu Jan 21, 2021 9:59 pm
by Nebby
One of the biggest reasons is because FFEL loans do not qualify - but no one told the borrowers until they started getting denied. A recent report found 1 in 7 rejections are for this reason. Congress should change it. People paid into loans for 10 years that no one told them didn't qualify - and some servicers actually told borrowers that their loans qualified when they didn't. https://www.forbes.com/sites/adamminsky ... borrowers/

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Thu Jan 21, 2021 10:26 pm
by Nony
That's depressing. I do think a lot of it is borrowers getting it wrong, but we're still looking at relatively early adopters and I'm sure the majority of them got terrible advice.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Fri Jan 22, 2021 5:16 pm
by Story
I had no idea about the FFEL issue. Well, time to triple-check with FSA.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Sun Jan 31, 2021 7:18 pm
by Nebby
Story wrote:
Fri Jan 22, 2021 5:16 pm
I had no idea about the FFEL issue. Well, time to triple-check with FSA.
If you've ever submitted an employment verification to Fed Loan, then that would have caught this. A lot of folks never submitted those forms before the 10 year mark.

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Sun Jan 31, 2021 8:06 pm
by Story
Nebby wrote:
Sun Jan 31, 2021 7:18 pm
Story wrote:
Fri Jan 22, 2021 5:16 pm
I had no idea about the FFEL issue. Well, time to triple-check with FSA.
If you've ever submitted an employment verification to Fed Loan, then that would have caught this. A lot of folks never submitted those forms before the 10 year mark.
Good to know. Thanks .

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Wed Apr 07, 2021 9:30 am
by Nebby
Submitted my annual recertification and up to 51/120 qualifying payments. I can see light at the end of the tunnel!

Re: LRAP/IBR/PSLF. How does it work? Let's find out!

Posted: Mon Apr 12, 2021 12:47 pm
by twenty
I expect that in the next 2-3 years we start seeing a much higher percentage of successful PSLF discharges and ramp up from there. If I remember correctly, law schools LRAP programs weren't utilizing PSLF at all until C/O 2013ish. Georgetown was an early adopter in late 2010.