How mind-numbingly, colossally f----ing stupid is this plan?

[Funky Bunch]

This also mean you could simply give whatever you can to a 401k plan and immediately take it for student loans up to the limit....and then take the employer match into a roth and avoid taxes on the growth. This is actually brilliant.

Employer matching funds go into traditional accounts. They can't go into a Roth. This is basically a tax credit for paying student loans for people that have retirement funds. For the tuituion costs, it is a tax credit for people that can't already use the AOTC. It makes a credit available for couples making more than 180K. Lowering the interest rate on loans would be a simple solution.

 

[Urohawk]

Most important think they need to be able to do is refinance student loans. The idea of locking in a rate is stupid. No other loan I can take out makes me lock that interest rate forever.

 

[SeaPA]

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.

I doubt there are all that many college grads who pay no tax in their early working years. Take a guy who just graduated & gets a job making $30k. He's single, no kids. He's gonna pay about $2k in federal income tax (maybe $1500 to $1600 if he has student loan debt & is paying $3k or so in interest).
Most who pay no income tax are lower income with multiple kids (they pay no tax due to a combination of child credits & earned income credit), or higher income with types of businesses that provide opportunity for significant tax deferral opportunities through use of various tax laws.

 

[hawkedoff]

Employer matching funds go into traditional accounts. They can't go into a Roth. This is basically a tax credit for paying student loans for people that have retirement funds. For the tuituion costs, it is a tax credit for people that can't already use the AOTC. It makes a credit available for couples making more than 180K. Lowering the interest rate on loans would be a simple solution.

Or simply follow the plan proposed. It is a really good plan

 

[Funky Bunch]

Or simply follow the plan proposed. It is a really good plan

OK, I;ll take your word for it. You seem to be an expert on retirement plans.

 

[hawkedoff]

What is amazing in this thread is the misunderstanding that compound interest works in both directions. Paying off a debt like student loans eliminates that compound interest against you. It is essentially locking in a rate of return for yourself equal to whatever the interest rate is on the student loan. Add in the fact that these loans are treated like the government is a loan shark and that the juice keeps running no matter what and they never can go away through bankruptcy giving people an option to leverage retirement funds without penalty up to a certain level makes a lot of sense.

His idea to then allow you to take your employer match and put it in a roth of some sort? That is not something everyone will do but it is brilliant.

People will be able to pay off their loans at a much higher rate using funds that do not affect their budget and allow them to get out from under a crushing debt.

Lowering interest rates does next to nothing especially when that has zero teeth on existing contracts.

 

[Funky Bunch]

What is amazing in this thread is the misunderstanding that compound interest works in both directions. Paying off a debt like student loans eliminates that compound interest against you. It is essentially locking in a rate of return for yourself equal to whatever the interest rate is on the student loan. Add in the fact that these loans are treated like the government is a loan shark and that the juice keeps running no matter what and they never can go away through bankruptcy giving people an option to leverage retirement funds without penalty up to a certain level makes a lot of sense.

His idea to then allow you to take your employer match and put it in a roth of some sort? That is not something everyone will do but it is brilliant.

People will be able to pay off their loans at a much higher rate using funds that do not affect their budget and allow them to get out from under a crushing debt.

Lowering interest rates does next to nothing especially when that has zero teeth on existing contracts.

You think the interest on the loan is more than what your retirement fund would have earned? Good lord.

 

[hawkeyetraveler]

What is amazing in this thread is the misunderstanding that compound interest works in both directions. Paying off a debt like student loans eliminates that compound interest against you. It is essentially locking in a rate of return for yourself equal to whatever the interest rate is on the student loan. Add in the fact that these loans are treated like the government is a loan shark and that the juice keeps running no matter what and they never can go away through bankruptcy giving people an option to leverage retirement funds without penalty up to a certain level makes a lot of sense.

His idea to then allow you to take your employer match and put it in a roth of some sort? That is not something everyone will do but it is brilliant.

People will be able to pay off their loans at a much higher rate using funds that do not affect their budget and allow them to get out from under a crushing debt.

Lowering interest rates does next to nothing especially when that has zero teeth on existing contracts.

It is NOT brilliant unless you believe the market over the term of the loan will underperform the loan interest rate or unless you have a crazy high interest rate. Sure having the option is nice in a long term recessionary environment, but this is not a “plan” it’s a side option that only makes sense in very limited situations.

Read my posts above before describing this as brilliant or let me know if you want help with the definition of that word.

 

[Funky Bunch]

The only brilliant thing about this is being able to withdraw your pre-taxed contributions and avoiding taxes entirely on that money. The plan itself isn't brilliant. Taking from your retirement fund is never a good thing. Like I said, just lower the interest rates on student loans. Or increase the AOTC and allow student loan payments as a qualified expense for AOTC. That is brilliant.

 

[hawkedoff]

You think the interest on the loan is more than what your retirement fund would have earned? Good lord.

It is a guaranteed rate of return vs the risk involved in investment.

Yes in many cases it would be more considering the interest rate some people are paying on student loans.

Let me know where else you can get a guaranteed return of 6 percent.

 

[hawkedoff]

The only brilliant thing about this is being able to withdraw your pre-taxed contributions and avoiding taxes entirely on that money. The plan itself isn't brilliant. Taking from your retirement fund is never a good thing. Like I said, just lower the interest rates on student loans. Or increase the AOTC and allow student loan payments as a qualified expense for AOTC. That is brilliant.

You are quite simply wrong. A tax credit does not even come close to helping people address their student loan debt.

This plan would.

 

[hawkedoff]

It is NOT brilliant unless you believe the market over the term of the loan will underperform the loan interest rate or unless you have a crazy high interest rate. Sure having the option is nice in a long term recessionary environment, but this is not a “plan” it’s a side option that only makes sense in very limited situations.

Read my posts above before describing this as brilliant or let me know if you want help with the definition of that word.

Wrong again. Lowering debt like this without an underlying asset of value is almost always the best option for the average person. This option allows them to do so

I suppose you set your retirement calculations at 10 percent when projecting out? Because you are really smart and all right and just know that is what you will get.

Except you won't.

It is a better option for most.

Get rid of the debt. Student loans are a terrible kind of debt to hold.


Yes a guaranteed rate of return of 6 percent is much better than the risk of the market for most people.

Get out of your text books and look at the reality of how people are living.

 

[JupiterHawk]

You can already do an emergency hardship withdrawal from your 401k and tuition and fees is a specific reason. Any idea of what the current tax penalty is?

Immediate and heavy expenses include the following:

• Certain medical expenses
• Home-buying expenses for a principal residence
• Up to 12 months’ worth of tuition and fees
• Expenses to prevent being foreclosed on or evicted
• Burial or funeral expenses
• Certain expenses to repair casualty losses to a principal residence (such as losses from fires, earthquakes, or floods)

https://www.investopedia.com/financial-term-dictionary-4769738

 

[unIowa]

This also mean you could simply give whatever you can to a 401k plan and immediately take it for student loans up to the limit....and then take the employer match into a roth and avoid taxes on the growth. This is actually brilliant.

Yeah that is what most people are missing with their knee jerk reaction. In theory this is a way to get your employer to help fund part of your education (or retirement, however you want to look at it) AFTER you have already graduated and are in the loan repayment process.

What we are hearing is young adults with crushing student loan debt are unable to fund anything else, which would mean their employer matched retirement account. So this would allow them to put their student loan payments into their matched 401k accounts, then take that money out to make their payments and for doing it this way they receive their employer match that would continue to sit in their retirement account for their long term retirement savings.

 

[Funky Bunch]

Yeah that is what most people are missing with their knee jerk reaction. In theory this is a way to get your employer to help fund part of your education AFTER you have already graduated and are in the loan repayment process.

What we are hearing is young adults with crushing student loan debt are unable to fund anything else, which would mean their employer matched retirement account. So this would allow them to put their student loan payments into their matched 401k accounts, then take that money out to make their payments and for doing it this way they receive their employer match that would continue to sit in their retirement account for their long term retirement savings.

Well if they're not already contributing up to the employer match at the very least, then that college education is worthless to begin with.

 

[unIowa]

Well if they're not already contributing up to the employer match at the very least, then that college education is worthless to begin with.

See Gender Studies and Philosophy degrees. If you want to get a job as a college prof in these areas then great but there are only so many of those jobs available.

Should we be subsidizing a worthless college education?

 

[Chewback]

Funny thing is that if a Democrat came up with this plan the righties would be screaming "Socialist giveaway!". But since it was thought up by a far right wing nut bag, it's a great idea.

 

[unIowa]

Funny thing is that if a Democrat came up with this plan the righties would be screaming "Socialist giveaway!". But since it was thought up by a far right wing nut bag, it's a great idea.

How would this ever be considered a socialist giveaway? Letting people keep more of what they earn is very libertarian policy. This has an added benefit of helping people also save for retirement, if they hadn't been doing it before, as well.

 

[desihawk]

One mitigating thing is that it puts the financial decision in hands of an adult instead of a hormonal teen. Bad thing is it just opens up another pot of money to the funny business of college education.

 

[Chewback]

How would this ever be considered a socialist giveaway? Letting people keep more of what they earn is very libertarian policy. This has an added benefit of helping people also save for retirement, if they hadn't been doing it before, as well.

Because it's a tax break for relatively poor people. Can't pay your loans = poor. Only rich people deserve tax breaks ergo socialist giveaway.

In any case, it's a bad plan. If people are able to put large amounts of money in a 401k but can't pay their student loans their priorities are fvkd up. They either shouldn't have borrowed so much or should have gotten a better degree. In any case, they shouldn't be able to pervert their 401k plan to get free money for their stupidly obtained loans. Find another way.

In addition, it should go without saying that any plan Rand Paul comes up with is going to be bad.

 

[Viv_Savage]

This stuff kind of blows my mind. What are your payments if you're 40k in debt? 400 a month? That's crippling? I'd really like to look at some of these people's expenses who want their loans forgiven.

Me thinks they aren't exactly living a very frugal lifestyle.

 

[ANYCHawk]

One mitigating thing is that it puts the financial decision in hands of an adult instead of a hormonal teen. Bad thing is it just opens up another pot of money to the funny business of college education.

Never understood this argument

Few people go to college as orphans