Sunday, October 15, 2006

More on opting out

After reading yesterday's post on opting out of Social Security, Marcie had an astute question: if the application form 4361 only requires a conscientious or religious objection to public insurance, why do I include things like student and housing loans in my list?

This is such a good question that it may account for why many have opted out even though they are not opposed to loan or disaster relief programs.  My guess is that, when most people read the description on IRS form 4361, the government-guaranteed student loan that they are still paying off never enters their minds-- so naturally they don't think that such loans have direct impact on this decision.

In fact, however, it is helpful to understand what it means for a loan to be "government-guaranteed".  This doesn't mean that they actually make the loans; this is done through a state-run or private organization such as Sallie Mae (private) or, in the case of my student loans from seminary, Mohela (Missouri Higher Education Loan Authority).  Instead, a government-guaranteed loan is actually insured by the federal government; in the event of default on the loan, the government would pay the balance.

This is a benefit to borrowers, because the lenders do not have to increase interest rates to account for defaulters.  Thus, students can borrow at very low interest rates because the government will guarantee repayment.

But it also fits under that category of "public insurance".  If I were disabled and therefore unable to pay my credit card payments, I would have to declare bankruptcy unless I had taken out private insurance for my debts.  If, on the other hand, I were unable to pay my student loans due to disability, the tax-payers (through federal taxes) would pay them for me.

The same applies to housing and disaster relief.  And, while food stamps, welfare, and the WIC program I mentioned before are not exactly in the same category as loans, they are in the category of "public insurance" in the sense that the tax-paying public collectively insures against any individual member of the public not being able to provide for their own food and shelter.

Thus, the list I provided yesterday is perhaps more comprehensive than what is immediately suggested by the term "public insurance" on IRS form 4361, but it is nevertheless an accurate list.

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2 comments:

Dennis said...

Hi Ed,

Your blog is a wealth of information. I just found it and will be reading it more over the next few days. Thanks for writing it. This is great stuff.

My name is Dennis McKeon. I just finished my first Access course at Covenant and am planning to attend full-time next Fall (07). Not sure how the finances are going to work. I have two kids (4 and 2). I've assumed a budget of between $2,500 and $3,000 (including monthly averaging of tuition at 50% w/scholarship assumption).

-Dennis

100Student said...

Hello,

I recently published an article on the dangers and benefits of student loans and other forms of college financial aid – here is a quote from it, in case you are interested:
Student loans repayment can be a real nightmare without adopting some strategies that would help the new graduates to organize their social and financial life. Here are some strategies they can use to do this:
- An additional part-time job;
- Freelancing is another option (meaning that they can do particular pieces of work for different organisations, without working all the time for a single organisation);
- They should try to keep their living expenses as low as possible (live in a smaller apartment, live with a roommate to share some of the expenses, find an apartment that is closer to the job, to eliminate the extra-expenses for transport etc.);
- To apply for forbearance (this is an immediate solution for hard times when the new graduate is in impossibility to re-pay the amount of money and the need for student loan consolidation becomes apparent; it is a temporary period, when the graduate can postpone or delay his or her re-payments until a later time on a federal or direct loan after the beginning of the re-payment, and when the student doesn’t qualify for deferral). The forbearance must be applied through the lenders of the loans.
- To consolidate the payments.
If you feel this helps, please drop by my website for additional information, such as federal student loans information or additional resources on private student loans .

Regards,

Michael