Money Matters: The PROSPER Act

Welcome to our recurring Money Matters segment! Every month, we’re sitting down with Joe Reinke, co-founder of FitBUX, to discuss a finance issue relevant to physical therapists. 

This month we’re talking the PROSPER Act, or how the government could get rid of loan forgiveness.

The PROSPER Act was introduced in December, and will have to make its way through Congress before June. “PROSPER” stands for Promoting Real Opportunity, Success, and Prosperity through Education Reform, and it’s the new version of the Higher Education Act.

Lost yet?

So were we. So we sat down with Joe Reinke, co-founder of FitBUX, who specializes in student loans to discuss the PROSPER Act. Joe has worked with over 2,000 physical therapists and student physical therapists to help determine the best way to repay the mountain of debt we accrued during school. He’s actually read the PROSPER Act, all 500 pages (but he tells us this is nothing compared to reading the tax code cover to cover).

Our question for Joe was, “What do we need to know about the PROSPER Act? How will this affect me as a physical therapist?”

Take a listen to the full interview on Talus Media Talks, but here’s the gist:

  1. The act would essentially do away with federal public service loan forgiveness. Congress has been “kicking the can” down the road since PSLF was brought into existence in 2007–it’s not a perfect bit of legislation. This doesn’t mean that there aren’t other ways to get your loans forgiven or paid off sooner (so don’t despair!). States and organizations such as Indian Health Services will often offer student loan repayment as an incentive to bring in much-needed healthcare workers.
  2. Your repayment option would be pay it 10 years. Period. Currently there are multiple ways to repay your loans–if you’ve done exit counseling recently, if you’re like me, you were mostly super confused by the end of it (and then I called Joe). The authors of the PROSPER act promise: “We simplify and improve student aid by moving to a one grant, one loan, and one work-study program.” So that means one method of repayment–which Joe says could be detrimental, since many physical therapists rely on the 25 year income driven repayment plan. It allows for flexibility in budgeting, maybe doing things like buying a house. Under the PROSPER act, income driven repayment would still exist, but it would be much more complicated and intricate than the current option. (Joe is working on a petition to keep this simple 25 year option).
  3. There would be a limit to how much you could borrow for graduate school (the rumor is $28,500 PER YEAR). So if you’re at a private institution or, like me, you paid out of state tuition, that math doesn’t add up. You’d have to go to private loans. Obama uncapped graduate loans in 2009-2010, allowing you to borrow as much as you need in federal loans to complete your education.
  4. Income-driven repayment wouldn’t mean your remaining balance would be forgiven after 20-25 years. Your loans would be forgiven once you had made $136,000 in payments…but that could take 30 years. Joe’s take? This could be good or bad, depending on what they do about the tax. Currently, if you are on Income-Driven Repayment and you hit the 25 year mark, the remaining balance is forgiven, but you owe the tax on that remaining balance. It’s fairly easy to calculate what you’ll owe and budget for it. The logistics of the new IDR program aren’t set in stone and are complex, but essentially, if the forgiven balance ISN’T taxed, this is a great thing! Probably won’t happen that way, but we can dream. The other option, if the remaining balance IS taxed, would mean that you’d really have no way to budget for the tax you would owe.
  5. We’re still not sure what the phrase “grandfathered in” means. It’s been thrown around every time PSLF is brought up. With the PROSPER act, we wonder if we’ll be “grandfathered in” on our current payment plan. But are you grandfathered in from the time you took out the loan? From the time you started higher education (are they including undergraduate loans)? From the time you started repayment? Joe says there’s no way to know until they write it.

As of right now, there are many unanswered questions regarding the logistics of revamping the higher ed loan system. Congress will reconvene on January 19th, but we’re not sure where this legislation sits on the priority list. We do know that the process for student loans has to be renewed at the end of every June…so it could be another cliffhanger! Stay tuned to Talus–we’ll let you know if and when the legislation moves, and what you need to do.