8 Ways You Can Quit Paying Your Student Loans (Legally)
Article Published by: huffintonpost.com
More than 40 million Americans have student loan debt. Of those borrowers, 5.6 million owe more than $50,000. That kind of crushing five-figure debt can take a real financial and mental toll.
If you fantasize about running off to a foreign country or faking your own death just so you won’t have to pay back your student loans, know that there’s a real way out.
Actually, there are eight ways, and they’re all perfectly legal.
1. Enroll in income-driven repayment.
Federal student loan borrowers who aren’t able to afford their payments can apply for income-driven repayment, or IDR. These plans, which lower student loan payments according to your income, also promise to forgive any remaining balance once the repayment period is up.
The repayment period on IDR plans lasts between 20 and 25 years, depending on the specific plan. According to student loan lawyer Joshua Cohen, the first of four existing IDR plans ― Income-Contingent Repayment ― was launched in 1994, which means we won’t see the first wave of loan forgiveness until 2019.
If you’ve been making payments on an income-driven plan, be sure to stick it out until the end in order to have your loan balance forgiven. And if you’re struggling with payments today, consider getting on an IDR plan ― just know that you’ll have to wait at least 20 years to get rid of the balance.
Another thing to keep in mind: You’ll be taxed on the full forgiven amount the year it’s discharged.
2. Pursue a career in public service.
If 20 to 25 years sounds way too long to wait, consider pursuing Public Service Loan Forgiveness, or PSLF. This program requires you to work for a qualifying employer in the public service sector.
Even better ― “You won’t be taxed on the amount forgiven,” said Miranda Marquit, my former colleague and senior writer at Student Loan Hero. However, she added, “You do have to spend 10 years at a nonprofit or government job. This can mean lower pay for those 10 years.”
And though the Donald Trump administration has proposed significant cuts to both IDR and PSLF in the budget proposal and PROSPER Act, any changes would only apply to new borrowers as of July 1, 2019. In fact, 2018 is the first year borrowers have been eligible to have their loans forgiven under PSLF ― and at least one person already has had his loan forgiven.
So if you’ve been working a low-paying job as a public servant while paying off your student loans, you could be rewarded with a tax-free gift from Uncle Sam.
3. Apply for disability discharge.
No one wants to imagine the worst happening, but sometimes it does. Fortunately, if you become disabled and can’t pay back your student loans, the Total and Permanent Disability (TPD) Discharge program can wipe the slate clean.
The program is available to most federal student loan borrowers, but not all types of loans qualify. To apply, you’ll need to fill out an application and provide documentation proving that you are totally and permanently disabled.
4. Investigate loan repayment assistance programs (LRAPs).
On the local level, there are hundreds of programs designed to help borrowers get some or all of their student loans forgiven, collectively known as loan repayment assistance programs.
“Many states are willing to help you pay off your student loans if you have certain skills that you can share,” said Marquit. “[Programs for] teachers and health care providers are among the most popular student loan forgiveness programs in different states.”
To qualify, borrowers are often required to work in high-need areas for a certain period of time. This could mean a less-than-desirable location and lower pay. Additionally, according to Marquit, many of these programs will tax you on the forgiven debt.
Even so, if you have a large amount of debt, an LRAP could provide you much-needed relief. Check out this LRAP search tool to find a program in your location and career field.
5. Ask your employer.
If you don’t qualify for these federal programs, there are still ways to get your student loans partially paid for. One source could be your boss.
“Employers are increasingly offering help with student loan repayment,” said Marquit. “This benefit doesn’t come with tax advantages, though. So if your employer puts money toward repayment, that will be reflected as income when you report to the IRS.”
About 4 percent of organizations currently help employees out with their loan payments, and that number is expected to grow rapidly this year. Your company might offer a student loan repayment benefit that you don’t know about, so be sure to find out.
And what if your employer doesn’t currently offer repayment assistance? Talk to your HR department about adding it to the benefits package ― it never hurts to ask.
6. Serve your country.
In addition to PSLF, there are loan repayment and forgiveness programs designed specifically for borrowers who have served in the military. Each branch has its own set of programs, such as the Air Force College Loan Repayment program and the Army Student Loan Repayment program. Of course, joining the military just to get your student loan debt forgiven may not be the smartest move. But if you’re currently serving or considering enlisting, loan forgiveness sure is a nice perk.
If the military isn’t your thing, volunteering your time with AmeriCorps or Peace Corps can also result in loan forgiveness.
“It can make sense to reduce a portion of your loan balance through a … program like AmeriCorps. Then, you can refinance the remaining balance and pay off the rest of the debt on your own. You’ll still save thousands in interest and become debt-free faster,” said Marquit.
7. Play a game.
Just about everything has been gameified these days, including student loan repayment. Givling is a web-based game that rewards winners by paying off a portion of their student loan or mortgage debt.
Players get two free rounds every 24 hours. After that, each play costs $0.50. When you join a round, you’re assigned to a three-person team and compete in a fast-paced trivia game for points. Members of the highest-scoring team are awarded a cash prize.
Givling is definitely more of a gamble than getting your loans forgiven through a federal program. But if you’re dealing with burdensome debt, it could be worth a shot.
8. File for bankruptcy.
A common myth about student loan debt is that it’s impossible to discharge in bankruptcy. “It’s difficult, but not impossible,” said Cohen. Often, borrowers simply don’t try because they assume it won’t work.
The key in most courtrooms is passing the Brunner Test, according to Cohen. To have student loans discharged, you must be able to prove that you wouldn’t be able to maintain a minimal standard of living due to the payments, that your situation will persist over a significant portion of the repayment period and that you’ve made a good-faith effort to pay back the loans.
One pitfall you should watch out for: Filing for bankruptcy automatically puts your student loans in default. “Someone who files for Chapter 11 bankruptcy might be thinking, ‘Once I get rid of this credit card debt, I can focus on my student loans.’ The problem is those loans are now in default, which means they’re due now, in full,” explained Cohen.
Your best course of action if you’re considering bankruptcy? “Talk to a lawyer,” said Cohen.
Student loan debt is a major responsibility, and it’s also a growing crisis among graduates. You should never take on debt with the assumption you can get out of it. But if there’s an opportunity to get out of paying your student loans, there’s nothing wrong with taking it.
ABOUT MICHAEL SMERIGLIO:
Michael Smeriglio III is a financial specialist. A licensed CPA since 1985, Mike has been providing tax preparation services to individuals and businesses for more than 30 years through his firm located in Greenwich, CT.