I wonder how much is income vs not working in government service the requisite number of years vs having the loans paid off before they are eligible to be forgiven vs other reasons.
Couldn’t give you a breakdown because of the terrible oversight of the program. I thought the number was about 1% of applicants and it is, but didn’t want to exaggerate it. Indeed it was: Why Public Service Loan Forgiveness Is So Unforgiving : NPR
The mismanagement was under the Betsy DeVos/Trump/Pence executive admin, but some steps have been made to alleviate it under the current one.
Yikes
Who could possibly have foreseen that turning over the Department of Education to someone who had a vested interest in for profit education schemes with reliance on unlimited government back loan guarantees regardless of school performance could possible have have put road blocks up on loan forgiveness?
It sounds like a lot of the problems specific to this program started during the Obama administration, given that the program has been around since 2007 and the cited examples included people who had believed for years that they qualified and didn’t.
DeVos’s unwillingness to fix it, or even acknowledge the problem, is on her and her boss though.
So sounds like the Bush Admin and Congress set up a program with vague guidelines.
The Obama Department of Education failed to make the program easily understood by defining clear guidelines.
The service providers both deliberately and inadvertently misled borrowers about eligibility and failed to provide the customer services they were hired to provide.
The Trump Department of Education (the first time borrowers would have qualified for 10 years of payments) deliberately stone walled any attempt at relief for people who made good faith attempts to enroll and comply.
Sounds like a Benny Hill skit.
Hopefully the Biden Department of Education is working to fix it. Seems like large but relatively straightforward data base management system that’s required that should be able to easily tell is you qualify, what will be forgiven, when, and how close you are to stasfying the requirements.
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It seems they are trying although it’s a bit too little too late.
Definitely seems it should be easy to establish some parameters to mostly correct it, detect the biggest failpoints and work out either forgiveness for the tiny things (scrivener’s errors, incorrect forms provided) and extensions for larger errors by the beneficiary.
I can see a cluster-duck of trying to fix all the errors from 2007-2022 would be monumental.
I can see implementing a system going forward of registering:
- what loans are eligible for forgiveness
-how many of the 120 loan payments toward forgiveness have been made
-what employers qualify as eligible employers
-how many years of the 10 years you have worked for an eligible employer. (though I think they could set it like Social Security and do 40 covered quarter and how many quarters you have)
I mean JHC it seems like there are only those data points to track. Then you should be able to log on like the social security web site and see exactly where you are at any given time.
Saw this today. Hopefully things improve soon for many borrowers.
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Yeah this whole thing is absolute trash. Fortunately my wife’s loan forgiveness stuff has gone swimmingly through a separate program.
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Attended a Roth presentation yesterday.
Say I had $1000 today that I have a choice of either putting it into a Tradtional or Roth 401K. Let:
- X = the factor that amount invested increases between now and when I withdraw
- y1 = the factor for current tax bracket (so if taxed at 24%, the factor is 0.76)
- y2 = the factor for retirement tax bracket.
When I withdraw I would get
$1000 * X * y2 for Traditional or
$1000 * y1 * X for Roth.
So, for Roth to be worth my while, y1 should be more than y2 (that is, a higher tax rate at retirement than currently). Am I missing something?
If tax rates and income remain constant the two should in theory be equal. In practice there is a lot that goes into it. On thing about ROTH though unless they change it later is the withdrawals don’t generally hit your tax return for other items, and you don’t have the RMDs.
One example is a ROTH withdrawal won’t push you up for what percent of your SS benefit is taxable while a traditional IRA withdrawal will. I think it’s the same for IRMA on how much you pay for Medicare.
But I’m not a CPA so I might have some details off.
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Nope. Multiplication is commutative. Tax rate is the only variable that can change in this equation.
Well, technically, you can invest more into a Roth than a regular because it’s post tax money.
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Currently the cutoff point for the 12% tax rate for joint married filing is around $89.5K. I looked at that bracket historically and it’s been roughly the same (inflation-adjusted) for the last 20 years or so. So there’s a good chance that the cutoff will be the same (inflation-adjusted) for years to come. It would seem that tax rates are likely to go up at some stage - historically that band has been at 15%.
In retirement, to stay at that lower bracket, you can add the 15% of SS that’s not taxed (I don’t understand the Medicare so maybe that’s something additional) which might come out to roughly $10K. This would give $100K for the year at the lower tax rate.
I don’t envisage that we’ll need much more than $100K in retirement. If that lower tax rate remains below 22/24% or whatever marginal rate we’re currently on (apparently due to go up in 2025), then I figure I should fund the $100K purely with Traditional and SS. Anything on top of that would be Roth. So… not much Roth is needed.
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Even if the tax rates do not change, Roth contributions are taxed at your marginal tax rate while working, whereas your Traditional withdrawals will be taxed on your effective tax rate (i.e. as ordinary income building up beginning at $0 through the tax brackets). Unless you are withdrawing in retirement amounts far in excess of your salary while working, the effective tax rate on Traditional will most certainly be less than the marginal Roth tax rate.*
Because of this, I would not agree that they are theoretically equal.
*RMD’s might be a major reason why this might happen, but that would mean you already have a sizeable amount of Traditional savings. I.e., if you’re making this decision on the margin, Traditional contributions might make sense up until a large enough balance is built up, but once RMD’s become a real threat then Roth might be the way to go.
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This seems intuitively correct, but it is not the right way to compare. See the Common Misconceptions section in the link below. Kitces has a similar take.
Through calendar year 2025, taxable ordinary income earned by most individuals is subject to the following seven statutory rates: 10, 12, 22, 24, 32, 35, and 37 percent. At the end of 2025, the rates will revert to those in effect under pre-2018 tax law. Specifically, beginning in 2026, the rates will be 10, 15, 25, 28, 33, 35, and 39.6 percent.
Personally I can’t see how taxes can go lower which is why I think it is better to pay the tax (go Roth) now - before it changes back to 15%. I guess you could say there has been a 20% off sale within the 15% tax bracket and I’m backing up the truck.
y1 < y2 for three more years => Roth
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That’s assuming that all of your withdrawals are in the same marginal income bracket when retired as the deposits when you are working. Still, you have a good point - if you are ever going to Roth it up, the next 3 years look like a good time to do it.
I did mention the historical 15%, which is still lower than 22/24%.
No, all of this is correct. For now, anyway. They add tax-exempt interest for computing Medicare premiums, and it wouldn’t shock me if someday they add in Roth distributions as well. But at present they do not.