Skip to content

Want Higher Education? Get Ready to Pay the Ambition Tax – Yahoo! Finance

By Janet Al-Saad

NEW YORK (MainStreet) —If you’re in the market for higher education – but can’t afford the hefty price tag out-of-pocket – get ready to pay a tax on your ambition. The interest rates paid on federal student loans (especially at the graduate level) exceed those for other notes, effectively placing a tax on the most ambitious. A recent study by the New York Fed sheds light on the growing burden: Student loan borrowers are for the first time less likely to obtain mortgages or auto loans. That’s capital being diverted from ostensibly more economically productive activities to debt repayment.

… The government responded to the onerous burden of student loan debt by creating new income-sensitive federal loan repayment programs such as Income Based Repayment and Pay As You Earn. These programs enable borrowers to repay based on their earnings, capping payments at 10 or 15% of disposable income. For those having difficulty repaying on a traditional ten-year schedule, they can help reduce delinquency.

But the programs also have their drawbacks. Although all remaining debt is forgiven after 20 or 25 years (PAYE and IBR, respectively) of repayment, it still means borrowers are on the hook to the federal government for decades, often seeing their balance balloon despite making regular payments. And because these are government-run programs, collections on delinquencies can be a lot more aggressive — including garnishing wages, confiscating tax refunds and imposing hefty collection fees of up to 18.5%.

Read the Rest @ Want Higher Education? Get Ready to Pay the Ambition Tax – Yahoo! Finance.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: