The US is full of deadbeats, and I am one of them.
Getting into debt and then screaming “predatory lender!!” when it is no longer convenient to pay is one of the good ole American pastimes. It seems to be a mindset that permeates society from the individual level all the way up to Washington, with levels of debt eclipsing any other nation in the history of the earth. There are many hugely indebted segments of the market, but right now I want to talk about one in particular: Student debt.
It seems to be common knowledge now that the US student debt situation is completely out of control. I, as well as many others, have written about this tidal wave of debt and what it may mean for the economy as a whole in the future. To avoid beating a dead horse, I will stay away from larger implications of where we are. Instead, I’ll individually address those hundreds of thousands of people out there who now find themselves in the precarious position of having to pay back their huge student debt in an economy where the jobs that they thought would be delivered on a silver platter simply do not exist.
Specifically, I want to show how to get out of paying your student debt.
You irresponsible deadbeat bastard, pay back what you owe!
There are many people out there that will cry with moral outrage that not paying back your student debt is tantamount to stealing money from the collection plate, and that those who borrowed the money read the terms of the agreement and have a moral obligation to pay it back.
I don’t see it that way.
At this point, the entire financial system is one giant moral hazard. To start with, loans are originated by the banking system out of thin air so there is no “theft” taking place. If you have not yet realized that we live in a fraudulent debt-based economy then watch this video. I am a very staunch believer in honoring your agreements on an individual basis, but in this case, one party has the magical ability to print money, which makes the entire transaction a farce. In fact, one of the big secrets is that the success of the current system rests on people taking on debt and then canceling it if things don’t work out. If there were no bankruptcy or foreclosure procedures, almost all of the people we consider to be the most successful today would be stuck in debt from their past failures, and wouldn’t have been able to move on to more productive things.
Bailouts, subsidies, and the nature of the system, in general, takes morality completely out of the equation when dealing with bank or government loans. If it is an outrage to not pay your student debt, then there should be just as much outrage for every man, woman, and corporation who uses the system to their advantage. It is like accusing someone of assault in the middle of a cannibalistic mosh pit.
Also, when looking at the economy as a whole, the numbers just don’t work. Many baby boomers have been wiped out by inflation, interest, taxes, and market crashes and have nothing saved for retirement, which causes them to stay in the jobs that would otherwise free up positions for younger people. That in conjunction with companies leaving the US left and right means that there are simply not enough jobs available that pay the kind of wages one needs to pay back their loan. You can castigate those that can’t pay back all you want, but the fact remains that many of the already outstanding loans will never be collected.
As of now, 51% of borrowers are not paying their student loans on time. So rather than pretending like this situation doesn’t exist or trying to squeeze blood out of a turnip let’s talk honestly about what the options are for people who have student debt.
1. Declare Bankruptcy
Bankruptcy does not normally discharge student debt, but in certain circumstances, it can. The key to this is proving that the loan will cause undue hardship on you and your dependents. This is normally pretty hard to prove and up to the discretion of the judge, but if you do not have the money to maintain a minimal standard of living it may be possible. Many courts go by what is called the “Brunner Test” which means you have to meet all three of these requirements:
Poverty: Based on your income you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
Persistence: Your current financial situation is likely to continue for a significant part of the repayment period.
Good Faith: You have made a good faith effort to repay your student loans.
Once you file bankruptcy you will need to file a petition that looks something like this. Even if you have already filed bankruptcy it is possible to reopen your case and file a petition. If that doesn’t work you can file for chapter 13 and have a more manageable payment plan for three to five years. Enough time for you to figure out another strategy once you get out of bankruptcy.
2. Enroll in a Deferment program
The federal government has put into place several deferment programs for people who qualify. There is a good chance that if you apply for one of these programs you will not have to pay anything at all. Over 40% of the people that apply for these income-based payment programs have a ZERO dollar monthly payment. How is that possible? Well, your payment is calculated as 15% of the difference between your gross income and 150% of the poverty level for your state. So if you make very low income or income off the books, this could be the ticket for you. If you can keep it up for 20-25 years your loan will eventually be completely forgiven. In order for you to be eligible for one of these programs, you must not already be in default. There are also programs that can take your loan out of default, but you will normally have to make some kind of payment for up to a year before you will once again be eligible. You can check your eligibility with companies like American EDU Loan Help.
3. Demand to see your loan documents
Much like the mortgage industry during the housing bubble, many student loans are bought and sold on the secondary market. Many were sold in pieces, and the paperwork can be very hard to track down, especially if you have a loan originated before 2012. If they cannot provide you with the certified documents saying that you owe the money there is a very good chance you could be COMPLETELY off the hook.
The first step in this process is to find out who owns your loan. Many times this is a tedious task, but you can get started by looking up your loan here. Once you find out who holds the loan you can send a simple letter stating that you need to see the certified copy of your loan documents.
4. Live in Kansas
You can apply for the Rural Opportunity Zones Program. With this program, all you will have to do is simply live in rural Kansas for five years and they will pay off your student loan of up to $15,000.
5. Negotiate with your employer
It may be possible to negotiate a compensation package with your employer that includes payment of part or all of your student loans. You will probably have to commit to staying with the company for a while and possibly take a pay cut, but it could work out better for both of you. It may be less expensive for them to do a bulk payment of your student loan than give you continuous salary payments. They may also like that they will now have someone who will be staying with the company for the long haul.
6. Job-specific repayment plan
There are many programs that require you to work at a specific job for a certain amount of time after which your loan will be completely forgiven. Some of these programs include:
7. Just don’t pay
This may seem unrealistic but there are presently 91 billion dollars in student loans in default. This means that if you choose not to pay you will be just one person in a BIG club of deadbeats.
What will happen if you don’t pay your loans? After a while, you’ll get a letter telling you that you now owe the entire lump sum amount. If you do not respond, they will then sell the debt to a collection agency that will do the regular routine of harassing mail and phone calls, threatening to garnish your wages and take away your social security. Of course, this will mean that your credit will be ruined, but for federal loans, the most they can do is garnish 15% of your disposable pay and withhold your tax return refunds. A private company however can call you into court and get a judgment, which they may then be able to take straight out of your bank account.
8. Kill yourself
Maybe they’re all right. Maybe you are an immoral worm who took on more than he deserved and is now fit to live the rest of his life in misery. Don’t pay attention to the fact that the same people that are saying this are almost certainly living off of government handouts and debt in one way another themselves, and were probably also the ones convincing you to take on the debt in the first place. If you have kids and a life insurance policy, this may be a very tempting option. Killing yourself is not as easy as one might think though.
I suggest the helium in a plastic bag method.
P.S. Here is a student loan calculator for forgiveness, refinancing, and more. You can access it here.