student loans forgiveness and repayment Grigory Lukin letsretireyoung.com let's retire young

Student Loans and Your Options

Student loans suck, but they can be dealt with.

Student loans are a bizarre parasitic industry that targets the most naïve and least prepared members of society, only to saddle them with gigantic loans that usually can’t be discharged through bankruptcy. It’s not very sustainable in the long term, as Millennials (who got hit by rising tuition prices far more than previous generations) are far less likely to start a family, buy a house, etc due to our many, many financial problems.

student loans forgiveness and repayment Grigory Lukin letsretireyoung.com let's retire young
“I signed what?!” (Image by Cari Dobbins from Pixabay)

I haven’t written a lot on student loans because I’d paid mine off almost six years ago, and I think some mental block in my mind is deliberately ignoring that issue after all the years of stress it had given me. But still, you can’t hope to achieve financial independence while you have loans, and student loans are the worst of those. So, let’s dive in…

I was very lucky. When my family moved from Russia to the US, we landed in rural Nevada (don’t ask), the home of the cheapest university in all the land: University of Nevada, Reno. (Go Wolf Pack!) I hustled and bustled to get my degree in four years: I wasn’t a citizen at the time, so my scholarship options were quite limited. (Thank you, Pell Grant!) Even so, I managed to graduate in 2008 with just $18,000 in debt – a ridiculously low sum by today’s standards, I know. For what it’s worth, I did zero travel (aside from a mad Greyhound dash to see Warren Buffett in Omaha in 2008), almost never went out, etc. I still regret missing out on the college experience with all its spring breaks and wild parties, but hey, those are the trade-offs.

I graduated just before the economy collapsed due to yet another bubble (that time, it was real estate), and everyone had to scramble for any jobs at all. (And that’s how I became a box-packer at Amazon. Heh.) It took me almost eight years to pay off my loans, partly because I spent most of that time in low-wage manual jobs, and partly because my priorities were horrifically misaligned. As always, a fair disclaimer: I am not a financial advisor, and all of this is purely for entertainment purposes.

Knowing what I know now, what would I have done differently? I certainly would’ve concentrated on repaying my loans ASAP instead of chasing different investment schemes. Think of it this way: if your student loans have, say, 5% annual interest, that’s a guaranteed 5% return on your investment – immediately and permanently and irrevocably. If you’re only paying the monthly minimum on your loans while trying to invest, you won’t get too far in either direction, nor will you get any peace of mind.

If you’re tempted to invest in an index fund or a stock, keep in mind that they’re never guaranteed to continue going up. We’re still riding the historically unprecedented bull market that’s been ongoing since 2009, with a small pause in early 2020. None of that is guaranteed. Every corporation is just one big scandal away from financial ruin. Consider Boeing, a seemingly invincible company with the backing of the entire defense sector: between November 2019 and March 2020, in less than four months, Boeing’s stock price fell by 76.3%, from $374.83 to $89.00. That happened due to two fatal crashes caused by poorly tested software, but the same stock plunge can happen to any company out there, at least in theory. We all carry within us the seeds of our own destruction… Even giants like Apple aren’t safe.

Besides that, most people don’t have the stress tolerance to invest in stocks. (See my earlier post on this topic.) You could be a nervous mess, checking your Apple stock every day and losing sleep if it falls 5%, or you could just use all that extra cash to pay down your student loans’ principal amount. (After setting up an emergency fund, of course.) 

And besides all that, words cannot describe the amazing feeling you’ll experience after you pay off your final student loan. You’ll sing, you’ll dance, you’ll party, you’ll grin like a maniac. Kind of hard to get the same euphoria by putting your cash in a trading account. The mental feeling of freedom as you no longer have to account for loan payments… That’s an entirely different and liberating mindset. I view my personal financial journey with 2016 being the dividing line: after I paid off my student loans and my car loan, I could finally afford to dream bigger.

As for the actual pay-off: I’m going to assume you have multiple loans and not just one convenient loan to pay off. If so, there are two schools of thought. You could target your loans in terms of size, and pay off the smallest loan first, then the second-smallest, etc. Doing so will give you a sense of accomplishment, as if you slayed one debt monster after another. The second, more efficient way to do this is to pay off the loans with the highest interest rate first. (Especially those awful private loans.) The higher the interest rate, the more money they’ll cost you in the long run. If you attack that loan principal first, your money will be spent much more efficiently.

student loans forgiveness and repayment Grigory Lukin letsretireyoung.com let's retire young
You gotta keep slaying those debt monsters, one at a time. (Image by RENE RAUSCHENBERGER from Pixabay)

Consider loan consolidation: if you have multiple student loans, or different types of debt (credit card, student loan, etc), you might be able to save money by making a deal to roll them all into one. Your mileage may vary on this one, but it’s worth checking out. Google “consolidate my loans” to learn more: this could be one of these cases where a few hours of reading will save you a few thousand dollars and a whole lot of stress. There’s also student loan refinancing, which can lower your interest rate and your repayment period. This article goes into some detail on that, as well as your options for private loan forgiveness. (Much more difficult than federal loan, but not impossible.)

Student loans are incredibly hard to discharge through bankruptcy, but that’s not impossible, at least in theory. This Investopedia article is a brilliant resource on the topic. The trick is having to demonstrate “undue hardship” caused by your student loans, and that’s even trickier because there’s no specific definition of that term. Furthermore, this only really works (if it works at all) on private loans, since “federal student loans offer income-driven repayment (IDR) plans while private student loans do not.” And, of course, all the filing costs and court fees will have to come out of your own pocket… Consider this option carefully: I’m not sure you’d successfully prove your case if your monthly student loan payment still leaves you enough money to live on. But if you’re burdened with very high private loans, who knows – this might help you.

The IDR plans for federal student loans vary. As of this writing, there are four different plans (see this page for more information): if you qualify, you could end up paying just 10% of your discretionary income. (Discretionary income = your annual income minus 150% of the poverty guideline for your family size and state of residence.) One downside, of course, is that the duration of your loan would get extended to as long as 20-25 years. You’d still be able to pay it off early if you’d like, but if you set it on the minimum-payment autopilot, your neighbour’s newborn could end up getting a PhD before you finally pay off your student loan from way back when.

And, last but not least, there are student loan forgiveness programs. Those can be on the state/province level or on the federal level. In the US, there’s a spotty and, some might say, ugly history of loan forgiveness for public work. After initially being signed into law in 2007, the program had so many loopholes and such poor execution that getting your federal loans forgiven after teaching for 10 years was not guaranteed. There are some reforms taking place now, but it’s best to be very cynical, get a lawyer to help you with the program application, and get everything in writing and every conversation recorded. (Just because you’re paranoid, doesn’t mean they’re not out to get you, eh?)

In the US, federal programs for federal student loan forgiveness can be found here. Public Service Loan Forgiveness (PSLF) could get your loans forgiven if you spend 10 years working for a government or non-profit organization. Teacher Loan Forgiveness would forgive up to $17,500 of your loans if you “teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency.” (Note that it’s up to $17,500. To quote an excellent movie, “safety is not guaranteed.”) There is a special forgiveness program specifically for Perkins loans. After that, there are increasingly more unlikely scenarios, such as total and permanent disability, or if your school falsely certified your eligibility to receive a loan, or if you die. (Staging your own death would get you out of that pickle, but short of coming back as your own long-lost twin, probably not really worth it.)

Different states have their own programs to help you with your debts, though the caveat is that it’s only for specific job fields – typically teaching and nursing. If you’re a fellow Liberal Arts grad who dislikes kids, please accept my condolences.

In Canada, there are similar options on the federal level: repayment assistance plans (aka RAP), full forgiveness in case of severe permanent disability, and some help if you’re a doctor, resident, or nurse. On the provincial level, there are some programs in British Columbia, Quebec, PEI, and Nova Scotia: they appear to be for partial forgiveness only, and the requirements vary. That’s well worth checking out and googling to follow up: if you find a new way to deal with your loans, you’ll end up saving thousands of dollars in exchange for just a few hours of your time, eh.

Unless and until there’s a permanent reform of the entire student loan process (and not just one-time amnesty that will leave all the future students in the dust), student loans will continue to be the worst rite of passage in recorded history. All this advice, and more, will continue to be relevant, so please feel free to share it with your friends – and post your own advice and knowledge in the comments. I hope this helps you on your quest to financial freedom. 

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