There are simple, go forward solutions that are specifically

There are simple, go forward solutions that are specifically
by Raoul (2024-02-23 15:30:31)

In reply to: I missed all the fun posted by El Kabong

ignored because they are politically unpalatable to the non profit education lobby. The best is the Gainful Employment concept. This measures the debt burden upon graduation of a student with an assumed reasonable amortization table against the actual earnings of students who borrowed money By School By Degree program. The data is all there as it has been collected for years as this was first implemented for For Profit school 8+ years ago by Obama.

When a program at a school "failed" the gainful employment rule, the school had one obligation and two choices:

Obligation: Rebate tuition back to students who borrowed too much Title IV money and de facto "overpaid" for their degree, because all data suggests they cannot successfully repay their US Government Student Loan

Choices: (1) Adjust tuition of the specific program downward so that future students do not "overpay" and thus "over borrow" Title IV to fund pursuing that program at that school; or (2) Teach out the program (i.e. shut it down) as no more Title IV funds would be available for prospective students of the program at that school. But they would remain available to students of programs that do "pass" the Gainful Employment test - meaning the typical student who borrows and graduates has a reasonable chance to pay down her or her debt.

Now when Trump came aboard, it went away because it was never implemented across all schools. The language was limited such that the testing was more or less limited to For Profit schools and non-profits (private or state schools) were exempted. Rather than fight to implement across all schools, Trump Education Dept simply stopped it completely. We are back to only limiting or stopping to provide Title IV funds to schools when (1) a very large percentage of students in an annual cohort (so class of 2018) stop paying on student loans 5 years later - so way after the fact, and nothing specific to a program and low career prospect programs get "helped" by high prospect programs; or (2) the school does not provide adequate proof of the schools financial health or compliance on various rules (audits to even reveal this are very lax).

Biden wants to reinstitute Gainful Employment right now for For Profit colleges and declare victory on "solving the problem". Needless to say, as was the case 10 years ago, the non-profits are cheering this as they want less competition for students and gladly attribute the whole debt problem to For Profit schools. But most of the dog For Profits are gone as they were weeded out successfully by Obama and most of the school failures from 2014-2020 were For Profits (and much of that debt has already been written off post school bankruptcy). There are not nearly as many For Profits around to blame. And even with them dramatically shrunk (University of Phoenix still exists but enrollment down over 80% from peak) the survivors have honed their focus on highly vocational programs (like UTI and Auto Mechanics or Chamberlain and Nursing or so many others focused on Pharmacy Techs or Medical Billing - where grads can pay off loans and programs will pass Gainful Employment if re-instituted).

Bottom Line: We should re-institute Gainful Employment testing for For Profits and Non Profits. Of course, this is loathed, especially by academia which fears financially encouraging students not to major in humanities subjects. Thankfully, this is already happening in the market place as students learn more, but many still pursue school degrees for which they have little prospect of paying down their debt. What is really needed is some combination of (1) Students who need to borrow to pursue such university programs get grants not loans - because on average they can't afford loans (2) Lower the tuition for programs whose career prospects are objectively worse - why should someone pay the same for a music degree or fine arts degree as an engineer or accountant pays? The market place certainly values the professor's earning prospects outside of school differently. Schools don't want to do this, but Gainful Employment would force the tuition reduction lest the program be eliminated due to ineligibility for Title IV loans (3) Fewer schools offering these lower vocation prospect programs. This again could result from Gainful Employment implementation across all schools or happen as it sort of is now as private and state schools everywhere cut programs with low enrollment which, in many cases, involve programs like fine arts and music or German, etc. How many state schools in Ohio need to offer a full slate? We need to encourage or have policies that promote consolidation of low vocation prospect programs into fewer schools where each program can have the best teachers, best state funding, the best grant solicitation (because they need it) and yes fewer overall jobs for some of the professors.

The other good option, employed by Brazil, is make the school share in bad debt as incurred. The money gets clawed back out of future Title IV funding. The only problem here is that schools will not be proactive and will fail left and right after the fact.

The worst option is to enable what we have.

Another simple move that makes sense to me

Make the payments fully tax deductible.

Perhaps only if you work in the field you graduated from, but in general as others point out the funds I put into my education are a business expense.

Yes, I suppose one would need to identify vanity degrees that are meaningless, but even there it seems a lesser issue then giving money to a multi billion dollar hedge fund with an educational mission like ND.

entire payment or just interest?

I think that a deduction on interest is fair, perhaps with some income phase outs.

They have it on interest below certain income levels

However, my entire medical school bill was a necessary business expense, both principal and interest. It's not any less relevant to me being a doctor than a company car is for a salesman or the myriad of write offs that businesses include, other than the temporal fact that the tuition expense is incurred in a different year, and by category is not a write off expense.

you don't have to convince me, I know and agree *

Interest was deductible until the early 1980s. Vivid memory

summer of 1980, when applying for my first loan, of my dad saying "after you graduate and are making money you will be glad to have this interest to write off." Nope. Eliminated while I was in school. Still, my $35K debt (10K undergrad, 25K law school) pales in comparison to today's world.

I feel like I am always on the losing side of these policies. My wife and I lived below our means to stash cash in 529 plans. Paid ~$700K out of pocket to get our 5 through college; 20 years of tuition in 12 years (2006-2018). Those that went to ND had some loans but happily 2 of the 3 have theirs paid off. Other two (UVA and SMC) had no loans based on their college choices. I played it safe and by the rules - others get bailed out. Oh well. I am grateful for the 529 saving plan incentive, however.

@jt - my middle child (it's always the middle child) may need your services as she is a doctor in debt, currently in a fellowship at Michigan. e-mail linked.

It's still deductible above the line. But phase out is low

The interest deduction income phase out is comically low in my opinion.

Your daughter should look into PSLF and SAVE (or whatever they call the income based repayment plans now).

I do find it interesting how you look at it though. You call $12k a bail out. I'm interested to know how much capital gains tax was saved in the 529 plans. I'd guess it was significantly more than $60k (5 kids x $12,000). I'll admit I'm making the possibly wrong assumption that the full $700k was paid out of the 529. Also, depending on where you live, it's possible those 529 deductions saved you a decent amount of money in state income tax.

I'd be somewhat surprised if the full 700k was from 529

accounts.

That would be relatively impressive savings over a relatively short period of time, considering they weren't even around until 1996, and by 2000 there were only 30 states that had them. It really took the tax act of 2001 to get them off the ground and into the mainstream.

that said, anything is possible.

Agree, but tax savings likely still substantial

I was just trying to point out it was a significant benefit received from a government policy decision, and I would assume Moose84 (similar to CATripleDomer below) would object if someone characterized it as a bail out.

In thinking about it a little more, $60k would require between $300k and $400k in gains which is unlikely so Moose84's net benefit of the 529 was likely less than $12k per kid, again depending on state tax impact.

I want to point out that it's an honorable thing that Moose84 did to sacrifice and save for his kids' tuition. He used the government programs available to him to as much benefit as possible which I encourage everyone to do. Just asking everyone to acknowledge the benefit and not describe benefits received by others using negative terms.

Thanks. And I am grateful for the 529 Plan program.

The tuition did not all come from 529. I had a unique situation 2010-2012 that allowed me to pay a year or two of kid 3's and 4's ND tuition out of cash flow while their 529s recovered and grew after the 2008 market meltdown.

Perhaps I was to strong in my wording saying "bail out." It just seems that policies change right at the wrong time for me. I am grateful I avoided parent loans or encumbering my house with new debt to accomplish the feat.

I said it before, I will say it again -- I am so glad to be out of that rat race!

@jt - I will e-mail you.

I don't know that I disagree with anything that you say

my concern is that this program, whether you call it a bailout or not, really doesn't solve the underlying issue(s).

It just reeks of politics as usual in this day and age.

I agree there too

I wish they would solve the real problem or even make an attempt. I won't hold my breath. In the meantime, I'm not going to begrudge a government benefit that might actually go to a middle class recipient for a change after experiencing the actual bailouts over the last 15 years.

I'm on board with this *

I agree with this. *