Is There Any Escape From Student Loans?

It didn’t seem so bad while you were in school – yes, you’d have to pay for it eventually, but here it is, tens of thousands of dollars a year to support not only your Master’s degree in ethnomusicology, but the biggest parties in the conference, and that one week in Cozumel you’ve sworn never to tell anyone about, and now it’s due.

You’ve already got a job lined up after graduation, but it’s not in your field (what is, anyway?), and at $13.60 per hour, with food, shelter, the health insurance penalty, and a couple of cases of beer a week to pay first, that doesn’t leave much for paying off your loans, let alone starting that 401(k) or finally going to London.  Even on the income-based plan, you’re still looking at 40 years of your disposable income eaten up to pay for that education, and all of a sudden you regret everything you’ve learned, and start researching more and more drastic ways to get free… here are a few that are recommended around the Internet, some of which work, and some of which really, really, don’t.

1. Move Abroad
This option was profiled in some detail in a Vice article last year, with American expatriates in Germany who fled their loans. While this seems to work at first, as the debt collectors aren’t allowed to pursue you abroad, it does create a number of problems.  First, you have to be ready to never come back to the United States again — even just visiting.  To fully escape your creditors, and no longer have a credit report, you will need to renounce your United States citizenship, which makes returning to your home country illegal without an Act of Congress authorizing your temporary return for some national benefit (and no, your 50th reunion won’t count. Not even your mother’s funeral. We’re talking about maybe if you were elected president of Lithuania after an unexpected career shift, and invited on a state visit to the White House). Also, your estranged family may still have to deal with your debt, besides the fact that you’ll never be able to come home again – if they cosigned on the loan, then your renouncement is treated similarly to your death, and your cosigners or other next of kin can inherit the debt, especially from private lenders. But if you’re willing to spend the rest of your life as a stateless fugitive, this one might work out for you.

2. Work For The Government
One of the few ways to actually get your student loans reduced is to work a public service job. Exactly what is included varies by state, but teachers, nurses, first responders and social workers are generally included, and many states include anyone on the state payroll as well. After ten years of public service, and making your payments on time during that span, your remaining balance will be forgiven. The one downside to this is that the forgiveness payment is considered taxable income, so your 11th year will be an expensive one, taxed on tens of thousands of dollars you’ll never physically see.  But once you’ve paid off those taxes, which a financial advisor can help soften the blow with estimated tax payments and/or extensions, you’ll be done with your loans and able to save or spend what you otherwise had to pay off from college.

3. Just Stop Paying
Technically, this is an option. Not a very good one, but an option nonetheless. In this case, the late payments and fees will add up, driving down your credit score not just to the minimum of 301, but all the way to 000. This will render you effectively unemployable, unhousable, and unable to even declare bankruptcy until the student debt is paid off. This option is only recommended for those who would like to live an off-the-grid, homeless lifestyle for the rest of their life, and are willing to commit to that or prison as the only future career paths… for the vast majority of borrowers, this one isn’t feasible.

4. Join the Army
This one actually works to avoid paying altogether, in some cases. While it is possible to get student loan forgiveness for joining any public service career, there is an added military benefit of active duty deferments. For as long as you are on active duty, plus 180 days after each deployment, your monthly payment will be deferred, and added to the end of the loan’s term.  Additionally, the interest rate will be lowered to 6% (if it was initially higher) for the duration of your service. Just like with the other public service careers, after ten years of service, and making any necessary payments (which should mostly have been deferred), the loan will be forgiven. An additional benefit, in the Army only, is that 1/3 of your remaining balance will be paid off after each full year of active duty, up to a total of $46,800. On top of that, if you spend at least one year of service in active combat, receiving war zone danger pay, or spend any amount of time in active combat and leave with a 100% disability rating, your entire loan will be forgiven.  All in all, these provide some strong incentives for joining the military after incurring student debt – both for you, losing your crippling debt, and for your country, with the relative shortage of college-educated service members

5. Consider Debt Counseling and Financial Advice
While this won’t necessarily eliminate your debt, a financial advisor can both work to maximize your own financial potential, and navigate the various debt consolidation and refinancing options. A financial advisor can probably lower your interest rate, and might even be able to lower your monthly payment, either by extending the term of the loan or refinancing to a different loan provider. While it may not seem like much, even a 1% reduction in interest can save tens of thousands over the life of your loans.