Student debt repayment question

[TDHoosier]

So I'm looking for opinions backed with facts on the proposed student loan forgiveness proposal. I have an attorney friend who stands by the charge that "no taxes would be used to payoff the cancelled loans" and that "the money paid on student loans gets lost in the Treasury Department and has nothing to do with new loans or the federal budget".

I have challenged this theory, but he dismisses my opinion because it is derived from internet talk and I have self admitted I have not read the proposal and do not plan to do so. He also claims I have zero knowledge of how future budgets work with respect to government even though I have worked on budgeting most of my banking life for the branches I oversee. He claims they are completely different which I call bullshit.

I may be wrong and he may be correct, I'm looking for you guys to give me your take.

 

[outside shooter]

I think your friend is wrong

Canceling Student Debt Isn’t Free. Here’s Who Pays For It

In August, President Joe Biden announced that he will cancel as much as $20,000 in federal student loan debt for lower- and middle-class Americans. The news comes after years of student loan forgiveness being dangled as a possibility but remaining a dream for struggling Americans. But student loa

www.forbes.com

 

[bawlmer]

So I'm looking for opinions backed with facts on the proposed student loan forgiveness proposal. I have an attorney friend who stands by the charge that "no taxes would be used to payoff the cancelled loans" and that "the money paid on student loans gets lost in the Treasury Department and has nothing to do with new loans or the federal budget".

I have challenged this theory, but he dismisses my opinion because it is derived from internet talk and I have self admitted I have not read the proposal and do not plan to do so. He also claims I have zero knowledge of how future budgets work with respect to government even though I have worked on budgeting most of my banking life for the branches I oversee. He claims they are completely different which I call bullshit.

I may be wrong and he may be correct, I'm looking for you guys to give me your take.

His comment about money "getting lost" in the Treasury Department is the clue that he's wrong. Any nontax revenue collected by the federal government is invariably earmarked for specific uses. Everything else is tax revenue.

 

[TDHoosier]

His comment about money "getting lost" in the Treasury Department is the clue that he's wrong. Any nontax revenue collected by the federal government is invariably earmarked for specific uses. Everything else is tax revenue.

He contends they will treat it like grants and therefore will not be a burden on anyone. He asked me who shoulders the burden of bad debt write offs for banks. He hasn’t responded when I told him shareholders, employees and the general public. I don’t think he liked that answer or anticipated it.

 

[bawlmer]

He contends they will treat it like grants and therefore will not be a burden on anyone. He asked me who shoulders the burden of bad debt write offs for banks. He hasn’t responded when I told him shareholders, employees and the general public. I don’t think he liked that answer or anticipated it.

I agree it will be treated like a grant, but those are funded by the government. Maybe he looks at deficit spending as no burden on anyone. Don't let him near your credit cards!

 

[TDHoosier]

I agree it will be treated like a grant, but those are funded by the government. Maybe he looks at deficit spending as no burden on anyone. Don't let him near your credit cards!

He is a HUGE Bernie Sanders guy so that may answer some of the issue. He did follow up with bad debt is not immediately repaid to banks so I answered my own question about his statement? To which I said, you are correct it is paid back over time which is the case with this proposal through taxpayers money. Poor guys is a bad attorney and what looks to be a bad financial guy as well. Funny this has been through Facebook and he got so many "you tell'em posts" from financial fools who all just want something for free and none of them have stepped up to my posts because it doesn't fit their narative.

I told him I'm fine if he likes the proposal just don't be naïve on how it will be paid back for future generations.

 

[anon_6hv78pr714xta]

So I'm looking for opinions backed with facts on the proposed student loan forgiveness proposal. I have an attorney friend who stands by the charge that "no taxes would be used to payoff the cancelled loans" and that "the money paid on student loans gets lost in the Treasury Department and has nothing to do with new loans or the federal budget".

I have challenged this theory, but he dismisses my opinion because it is derived from internet talk and I have self admitted I have not read the proposal and do not plan to do so. He also claims I have zero knowledge of how future budgets work with respect to government even though I have worked on budgeting most of my banking life for the branches I oversee. He claims they are completely different which I call bullshit.

I may be wrong and he may be correct, I'm looking for you guys to give me your take.

I'm no govt budgetary expert, but I'd present him with these and ask him to explain:

1. Money is fungible

2. Future govt spending can be paid for via revenues (tax coming in or fees), debt, or printing money

3. The loans have already been made--the money is out the door. The loan forgiveness will reduce the amount of revenue coming in, in the future. (Doesn't matter what you call it--a grant, a write-off, whatever.)

4. By not bringing in the $300B to $1Trillion in revenue estimated, we have to get the money somewhere for future budgets (tax revenue) or go into more debt or print more money.

5. The debt we go into, if we choose that route, is not free--it costs us in interest expense and other ways (including paying it off at some point!). If we just print more money, that affects everyone, including taxpayers.

I don't see how it ultimately doesn't fall on the taxpayer. But maybe I'm missing something?

 

[TDHoosier]

I'm no govt budgetary expert, but I'd present him with these and ask him to explain:

1. Money is fungible

2. Future govt spending can be paid for via revenues (tax coming in or fees), debt, or printing money

3. The loans have already been made--the money is out the door. The loan forgiveness will reduce the amount of revenue coming in, in the future. (Doesn't matter what you call it--a grant, a write-off, whatever.)

4. By not bringing in the $300B to $1Trillion in revenue estimated, we have to get the money somewhere for future budgets (tax revenue) or go into more debt or print more money.

5. The debt we go into, if we choose that route, is not free--it costs us in interest expense and other ways (including paying it off at some point!). If we just print more money, that affects everyone, including taxpayers.

I don't see how it ultimately doesn't fall on the taxpayer. But maybe I'm missing something?

I appreciate the information, he is not the brightest guy so arguing with him is a bit challenging.

 

[anon_6hv78pr714xta]

I appreciate the information, he is not the brightest guy so arguing with him is a bit challenging.

What is your motivation behind arguing with him?

 

[RegionHoosiers]

There's one "school" of thought that by adding it to the deficit it doesn't matter - i.e., it will never be paid down so it won't ultimately fall on taxpayers.

Even ignoring the interest cost, I think it's a ridiculous argument, but it's been made by people in both parties when there's a bill they support.

 

[larsIU]

What is your motivation behind arguing with him?

You asked this to a fellow WC poster?

 

[TMFT]

I think it's a really complicated answer.

1) it's definitely going to cost something. That cost is not necessarily going to be an addition to the expenditure list. It WILL be a reduction in the receipts category. Same result. Although if some number of these people couldn't/wouldn't make their payments anyway and went into default, the government would lose the same receipts.
2) Depending on the size of the individual debts, there are a lot of people for who it will cost very little to the government over time. For example, if you're on an income based repayment plan, your payments are capped at like 20 years already. If someone in that boat finishes their 20 years owing $10k+, then it effectively costs the government nothing because it would alternatively wipe the additional debt anyway.
3) Same as above for those in the public service loan forgiveness program started in like 2005 or 2006.
4) If it's considered equivalent to a tax cut for those with degrees (not exactly apples to apples, but more disposable income is the result), the economic effect of what happens when more money is available to get be spent as far as economic activity & tax receipts. Republicans should really understand this argument because they make it every time a tax cut is on the table. If Biden wanted to be dickish about it he should just say it'll pay for itself. I think if we've seen anything since March 2020 it's that the increase of disposable income has kept consumer demand high for a long time. Whether we're in a technical recession or not at this moment, the economy is going to have a big hiccup once the payments turn back on. But it has to happen eventually.

Now I can see why this hasn't made it into a soundbite.

 

[TDHoosier]

What is your motivation behind arguing with him?

He put in a facebook thread to someone that challenged his notion that they could ask any banker or financial advisor and they would basically confirm his claim. I responded and then he discounted my opinion as a banker because it didn't fit his narrative.

He also has individuals that are on the same thread telling him to preach to the rest of us, so it kind of feels good to put him in his place. He is a blow hard that has never done much other than live with his Mom and chase ambulances. Again I told him I respect his opinion on the subject just his claiming to know how it will be paid back is bad logic.

 

[TDHoosier]

I think it's a really complicated answer.

1) it's definitely going to cost something. That cost is not necessarily going to be an addition to the expenditure list. It WILL be a reduction in the receipts category. Same result. Although if some number of these people couldn't/wouldn't make their payments anyway and went into default, the government would lose the same receipts.
2) Depending on the size of the individual debts, there are a lot of people for who it will cost very little to the government over time. For example, if you're on an income based repayment plan, your payments are capped at like 20 years already. If someone in that boat finishes their 20 years owing $10k+, then it effectively costs the government nothing because it would alternatively wipe the additional debt anyway.
3) Same as above for those in the public service loan forgiveness program started in like 2005 or 2006.
4) If it's considered equivalent to a tax cut for those with degrees (not exactly apples to apples, but more disposable income is the result), the economic effect of what happens when more money is available to get be spent as far as economic activity & tax receipts. Republicans should really understand this argument because they make it every time a tax cut is on the table. If Biden wanted to be dickish about it he should just say it'll pay for itself. I think if we've seen anything since March 2020 it's that the increase of disposable income has kept consumer demand high for a long time. Whether we're in a technical recession or not at this moment, the economy is going to have a big hiccup once the payments turn back on. But it has to happen eventually.

Now I can see why this hasn't made it into a soundbite.

I appreciate the response, I will say there are a lot of "if's" in your assessment. Being in banking I'll address number one. If they do not make the payments then the consequences are detrimental to their future borrowing and I think that is a consequence that does make it hard for many to just walk away from. If the government was ok initially with student loan debt not being repaid I don't think it would have been excluded from bankruptcy?

Number 2 is a bit assumptive, my wife went back to college late in life to get her Nursing BS, it was an accelerated program where she had to be full time for 16 months. We took out a student loan for 10k to supplement her income (just kind of a buffer). Due to Covid she still owes $2000.00 which we fully intend to pay, but she qualifies for this forgiveness and by all means we will take it. Now with that being said it is still $2000 that we owe and quite frankly it would not be a long time burden on the taxpayers but none the less it would be passing that along just as I feel any forgiveness does.

 

[Sope Creek]

So I'm looking for opinions backed with facts on the proposed student loan forgiveness proposal. I have an attorney friend who stands by the charge that "no taxes would be used to payoff the cancelled loans" and that "the money paid on student loans gets lost in the Treasury Department and has nothing to do with new loans or the federal budget".

I have challenged this theory, but he dismisses my opinion because it is derived from internet talk and I have self admitted I have not read the proposal and do not plan to do so. He also claims I have zero knowledge of how future budgets work with respect to government even though I have worked on budgeting most of my banking life for the branches I oversee. He claims they are completely different which I call bullshit.

I may be wrong and he may be correct, I'm looking for you guys to give me your take.

Your attorney friend must be a litigator.

Forgiven student loans are paid for by taxpayers. When made the loans were guaranteed by the federal government, so when forgiven the guarantor steps into the borrowers' shoes. In essence the loans are treated as grants to the extent the amounts are forgiven.

BTW, some states are moving to tax the amounts forgiven as income to the borrowers. Others are waiving the income tax effect. Not sure of the political calculus in those states wanting to collect taxes on the amounts . . . .

These States Could Tax Your Student Loan Forgiveness. But Others Are Waiving Taxes

Six states could tax student loan forgiveness, up to $985

www.yahoo.com

 

[twenty02]

So I'm looking for opinions backed with facts on the proposed student loan forgiveness proposal. I have an attorney friend who stands by the charge that "no taxes would be used to payoff the cancelled loans" and that "the money paid on student loans gets lost in the Treasury Department and has nothing to do with new loans or the federal budget".

I have challenged this theory, but he dismisses my opinion because it is derived from internet talk and I have self admitted I have not read the proposal and do not plan to do so. He also claims I have zero knowledge of how future budgets work with respect to government even though I have worked on budgeting most of my banking life for the branches I oversee. He claims they are completely different which I call bullshit.

I may be wrong and he may be correct, I'm looking for you guys to give me your take.

My take is your friend is an idiot.

 

[Joe_Hoopsier]

I appreciate the response, I will say there are a lot of "if's" in your assessment. Being in banking I'll address number one. If they do not make the payments then the consequences are detrimental to their future borrowing and I think that is a consequence that does make it hard for many to just walk away from. If the government was ok initially with student loan debt not being repaid I don't think it would have been excluded from bankruptcy?

Number 2 is a bit assumptive, my wife went back to college late in life to get her Nursing BS, it was an accelerated program where she had to be full time for 16 months. We took out a student loan for 10k to supplement her income (just kind of a buffer). Due to Covid she still owes $2000.00 which we fully intend to pay, but she qualifies for this forgiveness and by all means we will take it. Now with that being said it is still $2000 that we owe and quite frankly it would not be a long time burden on the taxpayers but none the less it would be passing that along just as I feel any forgiveness does.

To your #1. Will this show up as a debit forbearance (is that the terms I'm looking for?) on their credit report? And then back to a different thread topic, be considered income on their taxes?

 

[Sope Creek]

To your #1. Will this show up as a debit forbearance (is that the terms I'm looking for?) on their credit report? And then back to a different thread topic, be considered income on their taxes?

1. Don't know. I'd guess that depends on the policies of the credit reporting agencies.

2. Federal Income Tax, no. https://www.khou.com/article/news/v...heck/536-9ba4fcf0-734a-40d9-bad8-7d7e38a478c9

State income tax: https://www.yahoo.com/lifestyle/states-could-tax-student-loan-011637813.html

 

[TDHoosier]

To your #1. Will this show up as a debit forbearance (is that the terms I'm looking for?) on their credit report? And then back to a different thread topic, be considered income on their taxes?

In the past if one did not pay their student loan debt it would reflect negatively on his/her credit causing issues with future borrowing I have no idea how they will treat this but would assume it would not be harmful since the creditor is the forgiving party.

 

[TMFT]

I appreciate the response, I will say there are a lot of "if's" in your assessment. Being in banking I'll address number one. If they do not make the payments then the consequences are detrimental to their future borrowing and I think that is a consequence that does make it hard for many to just walk away from. If the government was ok initially with student loan debt not being repaid I don't think it would have been excluded from bankruptcy?

Number 2 is a bit assumptive, my wife went back to college late in life to get her Nursing BS, it was an accelerated program where she had to be full time for 16 months. We took out a student loan for 10k to supplement her income (just kind of a buffer). Due to Covid she still owes $2000.00 which we fully intend to pay, but she qualifies for this forgiveness and by all means we will take it. Now with that being said it is still $2000 that we owe and quite frankly it would not be a long time burden on the taxpayers but none the less it would be passing that along just as I feel any forgiveness does.

I’m not even for the forgiveness because it’s going to require legislation to fix the systemic problems.

Do you know whether the CBO or anyone else has scored the economic growth/tax receipt impact of more money floating in the economy? I haven’t seen anything. Although I’m fully convinced that transferring money to people who will spend it is stimulative from a demand side of things. Even if demand isn’t a particular problem now. Still, lookout for a big drop in consumer spending come February, a lot of money is fixin to get sucked out of the economy.

 

[UncleMark]

Credit to @TDHoosier . Of all the threads we've had here that no doubt started with some Facebook idiocy, he's the first one to admit it.

 

[Sope Creek]

In the past if one did not pay their student loan debt it would reflect negatively on his/her credit causing issues with future borrowing I have no idea how they will treat this but would assume it would not be harmful since the creditor is the forgiving party.

When I think about this, is the debt not being paid? Maybe not by the borrower, but by the federal government. So I don't think this is a forbearance situation like a cram down in bankruptcy.

So no, I don't think this will have an adverse effect on the borrowers' credit.

 

[UncleMark]

When I think about this, is the debt not being paid? Maybe not by the borrower, but by the federal government. So I don't think this is a forbearance situation like a cram down in bankruptcy.

So no, I don't think this will have an adverse effect on the borrowers' credit.

Do the Feds even report to the credit bureaus?

 

[Joe_Hoopsier]

The feds didn’t issue the Liam’s, only guaranteed them, right? The bank would report.
a student borrows money for an education , the money was taken from the bank, given to the school, the kid received the education then said eff it. The fed steps on and says jay bank, little Hunter doesn’t have to pay you back, we will.
Little Hunter received the goods, isn’t it at least income to him?

Do the Feds even report to the credit bureaus?

 

[UncleMark]

The feds didn’t issue the Liam’s, only guaranteed them, right? The bank would report.
a student borrows money for an education , the money was taken from the bank, given to the school, the kid received the education then said eff it. The fed steps on and says jay bank, little Hunter doesn’t have to pay you back, we will.
Little Hunter received the goods, isn’t it at least income to him?

I'm nearly certain these are direct loans from the Feds to the student. The Feds are the bank.

My question was about the possible credit rating hit that was raised. I was wondering if the Feds actually report on the creditors to the big three credit bureaus. I really don't know.

 

[Crayfish57]

I appreciate the information, he is not the brightest guy so arguing with him is a bit challenging.

You did mention he was an attorney right from the start.........

 

[Sope Creek]

Do the Feds even report to the credit bureaus?

🤷‍♂️

 

[Sope Creek]

The feds didn’t issue the Liam’s, only guaranteed them, right? The bank would report.
a student borrows money for an education , the money was taken from the bank, given to the school, the kid received the education then said eff it. The fed steps on and says jay bank, little Hunter doesn’t have to pay you back, we will.
Little Hunter received the goods, isn’t it at least income to him?

Depends on which statute controls. IIRC, the student loan relief bill said it's not income to the borrower . . . under normal IRS rules, yes, forgiven debt would be income on the federal level.

 

[UncleMark]

You did mention he was an attorney right from the start.........

Moderator approved quality snark.

 

[Sope Creek]

I'm nearly certain these are direct loans from the Feds to the student. The Feds are the bank.

My question was about the possible credit rating hit that was raised. I was wondering if the Feds actually report on the creditors to the big three credit bureaus. I really don't know.

Q. How is my credit rating affected by a defaulted student loan?

A. ISAC reports your defaulted loan to all national credit reporting companies as a “collection account.” Once the defaulted loan is paid in full, the classification will change to “paid collection account,” but record of the default will remain on your credit report for seven years after the account is paid in full.

 

[UncleMark]

Q. How is my credit rating affected by a defaulted student loan?

A. ISAC reports your defaulted loan to all national credit reporting companies as a “collection account.” Once the defaulted loan is paid in full, the classification will change to “paid collection account,” but record of the default will remain on your credit report for seven years after the account is paid in full.

Thanks. Now the next question would be are the good payers reported as well? And do the credit bureaus take the student debt load into account when giving a credit score?

 

[Sope Creek]

Thanks. Now the next question would be are the good payers reported as well? And do the credit bureaus take the student debt load into account when giving a credit score?

You'll have to ask the credit bureaus . . . or do the internet search yourself. I have dessert calling me.

 

[Joe_Hoopsier]

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[dr.jb]

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[Joe_Hoopsier]

Equity!!! I’m now a Jedi knight!!
Refer to me as lord Hoopsier from this point forward!