- Sep 13, 2002
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Words almost fail me here. This is, this is just. JFC.
How mind-numbingly, colossally f----ing stupid is this plan?
- Thread starter torbee
- Start date
Paul's neighbor should have finished him off when he had the chance.
- Sep 13, 2002
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Yeah, I know a TON OF 18-year-olds who throw around $5K into their 401(k)each year!
What freaking planet do these asshats even LIVE ON?
What freaking planet do these asshats even LIVE ON?
What am I missing here?
So I can wipe out my student debt with money from my 401K with no penalties?
I would be all over that in a second. It would save my wife and I $700+ a month.
So I can wipe out my student debt with money from my 401K with no penalties?
I would be all over that in a second. It would save my wife and I $700+ a month.
What 18 year old has any college debt? Seems pretty simple. 401k plans can be set up to allow you to borrow from themYeah, I know a TON OF 18-year-olds who throw around $5K into their 401(k)each year!
What freaking planet do these asshats even LIVE ON?
Letting people pull from 401k without penalty isn't a bad idea. It might be a bad idea to take advantage of it in terms of a personal finance decision.
Leaving it up to the individual is A OK by me.
If student loan debt is keeping you from starting a business in your early 30's after already building up 401k from success in your 20's, then sure, it might make sense, and it's nice to have that option.
For most, yeah, it wouldn't be wise to take from your 401k to pay student loan debt, I'm happy to have the government remove themselves from that decision though.
Leaving it up to the individual is A OK by me.
If student loan debt is keeping you from starting a business in your early 30's after already building up 401k from success in your 20's, then sure, it might make sense, and it's nice to have that option.
For most, yeah, it wouldn't be wise to take from your 401k to pay student loan debt, I'm happy to have the government remove themselves from that decision though.
Doesn’t this just encourage poor personal finance decisions by sacrificing long term growth for the immediate satisfaction of debt repayment?
The only good part of the plan, as proposed, is removing caps on student loan interest deductions. That needs to be happen regardless.
The only good part of the plan, as proposed, is removing caps on student loan interest deductions. That needs to be happen regardless.
The only way this would make financial sense would be if you don't get taxes on the withdrawal
sounds like a great pan to me. if a liberal would have thought of it, torbee would be all for it.
I know for a fact we can use our 401k here that we have together as a family, on medical expenses as a hardship loan type deal. paying ourselves back. is that wrong too? education and medical expenses... libs are supposed to be all about that
I would be all over a plan that removed interest rates, save to tie the loan to inflation. I don't believe student loans should exist to profit from. Tie them to inflation, so that the loan value is the same until it pays off.
How long would someone have to work/have a 401k before they'd be able to pay off the student loan? Kudos I guess to Paul for actually having a plan, but this smacks of something that would be a short-term benefit, but would/could be harmful in the long-term.
How long would someone have to work/have a 401k before they'd be able to pay off the student loan? Kudos I guess to Paul for actually having a plan, but this smacks of something that would be a short-term benefit, but would/could be harmful in the long-term.
All student loan payments should be deductible on your income taxes, not just interest payments for people making less than $60,000 per year. That seems like a pretty reasonable, common sense compromise to me.
but there are tons and tons and tons of people who pay no taxes. or very little. especially youngsters right out of school. they don't earn enough.
This. A withdrawal with absolutely no taxes or penalties attached. Just a direct transfer of funds from one account to another.
The govt expanding the federal student loan programs helped to create the hyper-inflation we have seen in college education, it is simple economics. The only way to combat this outside of limiting access to funds and thus access to college education, is strong price controls which will cause wages in colleges to go down (for all staff) and an ending to the facilities build out arms race that we have been seeing in colleges (largely fueled by the ever increasing federal student loan monies these institutions receive from their students).
Read to learn: https://www.forbes.com/sites/presto...-student-loans-drive-up-tuition/#52fa57f452b6
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf
https://www.nber.org/papers/w21967.pdf
http://scholar.harvard.edu/files/goldin/files/does_federal_student.pdf
Note: I didn't read all the articles, didn't need to, I understand how this stuff works in reality. Economics is a science fellas, stop denying science.
Read to learn: https://www.forbes.com/sites/presto...-student-loans-drive-up-tuition/#52fa57f452b6
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf
https://www.nber.org/papers/w21967.pdf
http://scholar.harvard.edu/files/goldin/files/does_federal_student.pdf
Note: I didn't read all the articles, didn't need to, I understand how this stuff works in reality. Economics is a science fellas, stop denying science.
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*Not a financial planner, and didn't stay at a Holiday Inn last night*
Don't employers/plan providers get to dictate many stipulations of 401ks, unlike traditional IRAs? Could an employer already allow something like this? They often allow loans with or without repayment for primary homes/first time home buyers/foreclosure avoidance right? Could they, along with the plan provider, allow more? Or is that restricted?
I feel like this is a stupid question.
Don't employers/plan providers get to dictate many stipulations of 401ks, unlike traditional IRAs? Could an employer already allow something like this? They often allow loans with or without repayment for primary homes/first time home buyers/foreclosure avoidance right? Could they, along with the plan provider, allow more? Or is that restricted?
I feel like this is a stupid question.
- Sep 13, 2002
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I’ve said this for years. Much more practical solution than wiping out debt with one shot.
There are IRS laws about withdrawing money from these. You need to be 59.5 to make a withdrawal without a penalty. There may be some exclusions but someone else would know better than me.
hawkeyetraveler
HR All-American
Thinks to himself "a math problem...I bet I can quickly quantify how mind-numbingly, colossally f---ing stupid this plan is"
The average amount of student debt is $37,172. The average interest rate on that debt is 4.29% per year with an average of about 10 years on the loans.
(source: https://www.debt.org/students/)
The average annual S&P 500 return since 1957 when it went to 500 stocks is 7.96% (all time it approaches 10%)
(source: https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp)
Now, most people are not lucky enough to be able to have money in a retirement account AND also have this level of student loans. But, for those that are, you are presented with a choice of either paying more money back to avoid the 4.29% rate, or investing/keeping that money active in the market at a 7.96% rate.
If you tap your 401K to make a one time payoff of the loan: you will lose out on $16,451.95 of extra return you get by keeping it in the market over 10 years.
This should be obvious - return in the market has historically been higher than the interest on loans.
So, barring a collapse of the market, the very few people who could benefit from this plan would have to be VERY mind numbingly, colossally f---ing stupid to take advantage of it.*
* The only scenario where this is a good investment strategy is if the stock market underperforms historical long term averages. Is Rand Paul predicting a market collapse or something?
The average amount of student debt is $37,172. The average interest rate on that debt is 4.29% per year with an average of about 10 years on the loans.
(source: https://www.debt.org/students/)
The average annual S&P 500 return since 1957 when it went to 500 stocks is 7.96% (all time it approaches 10%)
(source: https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp)
Now, most people are not lucky enough to be able to have money in a retirement account AND also have this level of student loans. But, for those that are, you are presented with a choice of either paying more money back to avoid the 4.29% rate, or investing/keeping that money active in the market at a 7.96% rate.
If you tap your 401K to make a one time payoff of the loan: you will lose out on $16,451.95 of extra return you get by keeping it in the market over 10 years.
This should be obvious - return in the market has historically been higher than the interest on loans.
So, barring a collapse of the market, the very few people who could benefit from this plan would have to be VERY mind numbingly, colossally f---ing stupid to take advantage of it.*
* The only scenario where this is a good investment strategy is if the stock market underperforms historical long term averages. Is Rand Paul predicting a market collapse or something?
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Well yeah and that's why it's a bad idea. You are allowed to save pre-tax money for retirement, not spend it along the way for fripperies that entertain you. Student loans for an entertaining education that has little or no chance of making enough money to pay for said education is a frippery.
I'll give Rand a small amount of credit, at least he didn't encourage kids to go out and buy gold, or produce a racist news letter for decades and then says he had no connection to it even though his name was on it.
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LOL, the bar set by the modern GOP is hilariously low, that is for sure.
Appears to be some smart aspects to this plan....
First, you don’t have to pay tax on the withdrawal. This makes the decision much less ridiculous from a saving perspective.
2nd, you can take funds out right away - so if you’re not maxing out 401k contributions you can receive $5k in wages tax free by contributing and withdrawing for college expense.
First, you don’t have to pay tax on the withdrawal. This makes the decision much less ridiculous from a saving perspective.
2nd, you can take funds out right away - so if you’re not maxing out 401k contributions you can receive $5k in wages tax free by contributing and withdrawing for college expense.
If there's no income tax whatsoever on the withdrawl & transfer, this is actually not all that terrible.
Watching the replies roll in, this is like a case study of what happens when politicians have some bright idea and then the tax guys figure out how to game what the politicians came up with.
I won’t argue with your math, that’s pretty basic. I will argue that doing it that way could create cash flow issues for individuals with high amounts of debt. The student loan has to be paid AND they would need to have extra money (after basic living expenses) to contribute to the 401k.
hawkeyetraveler
HR All-American
Fair enough. All I would say is that if you believe you don’t need the money over a 10 year period it is hard to justify any early payoff of the student loan at a <5% interest rate. In most 10 year periods you will do better to invest the money in the market (or keep money already invested in the market). Unfortunately, many people do neither and just spend the extra money - a far worse decision.
