College, student loans and regret
Let’s face it, you make terrible decisions in college. Even if you are able to make it out without any serious marks on your record, ego or mental health, you’ve probably already made the worst mistake of your career without knowing it. I’m talking, of course, about the massive debt most of us incurred while paying for four years of college.
I’m an exception. Not in the sense that I don’t have student loan debt; instead, I’ve probably got much more than most people out there. The loans I took out to pay for college weren’t spent on wasteful resources, just books and tuition, but they still added up.
After going to a private university for undergrad and grad school (Go Bonnies!), I decided to head to law school. I took a year off in between my stint in grad school and law school, however. This downtime, although nice, gave me a staggering dose of reality — student loan payments were coming due. At the time, a lot of repayment options simply weren’t available and you either had to cough up a ton of money on a monthly basis or put them in forbearance. For me, given my meager bartending wages, forbearance was the logical choice. My $30/night in tips simply weren’t going to pay the bills.
After my first forbearance, I took a look at my loans and was in shock. The interest that had accrued was absolutely absurd. If my memory is correct, I believe nearly $1,500 in interest accrued every three months. And no, I did not take my private loans out from Western Sky. That was when I first took a hard look at what I had out there in student loan debt and exactly what I was dealing with. Most of the loans were federal (which tend to be easier to handle today) and some were private. The private loans were the nightmare. They were/are unwilling to negotiate or help, have sky high interest rates, and are not particularly flexible in payment plans.
I went into law school with the idea that I would have a unique background in business to leverage a solid opportunity either in a corporate setting or at a law firm right after graduation. Yes, that line is right out of my old cover letter. Apparently it worked as I was lucky to land a job at a local law firm right after I took the bar exam.
Part of my job as a bankruptcy, tax and business attorney is to deal with my clients’ debts. Dealing with student loans has given me a unique perspective on how to make some of those things work. With that being said, here are some key things for all of us with student loan burdens to keep in mind:
1. If you have federal loans and are having a hard time making payments, look to different repayment plans (pay-as-you-earn, income-based repayment, extended repayment, etc.). Federal loans have become much more flexible and allow for income-adjusted payment plans. After a certain period of time (20 to 25 years), the remainder will be forgiven and wiped away with certain plans. Keep in mind the amount wiped away will be taxable income, which will still leave you in a hole, just a much more manageable one to dig out of in 20 or 25 years.
2. Got private loans? There’s not a lot of leniency here. They have an extended repayment plan of 20 years, but your interest is likely so high it’s not going to matter much. Go on to your federal student loan account and look into a consolidation. If you’re working but can’t afford payments and may be worried about a garnishment, seek out a bankruptcy attorney. You can file a Chapter 13 that allows a 3-5 year repayment of your student loans, stops garnishments, and will likely reduce your monthly payment quite significantly (dependent on income/situation of course). Keep in mind they likely won’t be wiped away at the end and interest will continue to accrue.
3. This is just a personal opinion but being in the industry, I do believe the laws surrounding student loans are bound to change. They need to. I would prefer the new legislation to allow them to be wiped clean in a bankruptcy but that’s largely due to my own self-interests. Short-term, the economy would take a hit. Long-term, well, if you put an extra $300 to $1,500 per month in the pockets of individuals, they are going to have extra money to spend on houses, cars, etc. And what is better to stimulate an economy and create jobs than spending?
We, largely as a generation who has walked around a bit too carefree at times, are suffering for financial decisions made when we weren’t even of legal age to take a sip of alcohol. Just hold on, because I have a feeling change is coming sooner rather than later.