With Thanksgiving having just been yesterday, we’re likely all still reflecting on feelings of gratitude. I thought I’d take a different approach with this piece to give you some reasons to be thankful for student loans even when you owe so much student debt you don’t know what to do.
It might sound crazy, but you’re lucky even if you owe more than five times your salary.
Reason 1: Your career decisions should not be determined by student loans
The funny thing I’ve found about student loans is that the value of going for loan forgiveness is usually somewhere between $5,000 to $50,000 per year. Perhaps the average value is around $20,000.
While that’s significant money, I can’t imagine ever choosing a job that I hated just to earn an extra $20,000 salary. Yet so many borrowers I run into think their only option is working at the not for profit hospital, taking the job as a government meat inspector, working in a community health clinic, or living the life of a public defender.
If a lower paying public service job is your jam, then go for it.
However, the good news is that you can take a job doing whatever you want and still get a responsible plan to manage your loans. That might mean doing a 20-25 year option with taxable forgiveness, taking longer than 10 years to get PSLF, or being aggressive and paying down your loans quickly with a higher paying private sector job.
Reason 2: You can always leave the country if you want to
If you haven’t heard of the Foreign Earned Income Exclusion, you need to. This allows you to exclude over $100,000 of income earned abroad from your US tax return. While certain individuals like military or diplomats don’t qualify, this loophole allows you to have an Adjusted Gross Income of 0.
That could allow you to pay $0 a month. If you’re moving to India to get away from your debt, don’t default. Just pay $0 a month instead. It’s incredibly comforting to know you can always get away from your federal student loan debt if you absolutely wanted to.
Reason 3: Income-driven repayment options mean no one should default
Speaking of default, no one should ever need to do this for federal debt. For private debt, you can always consult with an attorney to see what options you have if you can’t pay.
For federal debt, the rules allow you to pay 10% of your discretionary income. That usually amounts to roughly 7% of your pretax salary if you wanted a rule of thumb.
If you can’t afford that payment, then you have a budget problem not a student loan problem. Recall that the larger your family, the lower your monthly payment too.
It’s exciting to me to know that you can always keep your payment proportionate to your income. That means loans should never cripple someone financially.
Reason 4: Filing taxes separately is an option if you don’t want to affect your spouse
Thanks to the PAYE and IBR plans, you can file taxes separately if you want to exclude your spouse from having their income counted on your student loans. That said, it could raise your tax liability.
The nice thing is that it’s an option. Sure, more choices mean more complexity. However, if you read a lot of our articles or hire us to figure your debt out for you, you’ll have the right information to make a decision one way or the other.
Thankfully, you can either include or exclude your spouse’s income depending on what makes the most sense.
Reason 5: Student loans shouldn’t impact your family choices
I have had a lot of clients show up for the student loan consult we do thinking that they couldn’t have kids because they owed over $200,000 in student debt. Nothing could be further from the truth.
You might not be able to have that debt amount and drive a brand new Honda van instead of the 2015 model. You might need to buy a 3 bedroom house in a good school district instead of the dream house with 5 bedrooms.
That said, a child should always be a personal decision thanks to the income-driven plans that limit your monthly payments. You would face the same financial challenges having a baby regardless of whether you have student loans.
Also, remember that no amount of income or financial security is going to make you feel 100% comfortable bringing a child into the world. It’s an intensely personal decision.
From a professional perspective though, know that you can have (or not have) as many kids as you want to.
Reason 6: Student loan interest is not compound interest
Everyone hears how destructive compound interest is when it’s working against you instead of with you. You might have assumed that if you pay less than the standard 10-year payment that you’ll owe $1 million in 20 years and will never be able to afford the tax bomb.
However, did you know that the government lets the interest grow at a linear rate instead of an exponential rate? That’s because the interest accrues instead of compounds. It’s a built-in subsidy in all income-driven repayment plans.
That means the worst-case scenario if you file your income certification paperwork on time is that you’ll owe a large number that’s gradually increasing. Not having any retirement savings in 20 years is a way more terrifying prospect mathematically than watching your loan balance grow.
Reason 7: I’ve never seen a student loan case that couldn’t be fixed
I don’t know if this gives you comfort, but I’ve personally advised over 1,000 student loan borrowers and the business as a whole has helped more than 1,500. We’ve never seen a person who’s beyond help.
Sometimes that means selling things you don’t want to sell, changing jobs, picking up more shifts, cutting back on your food budget, or other action items you’d prefer not to do.
More often, it means fixing a silly mistake, showing you the impact of forgiveness vs refinancing, explaining why new cars are ripoffs, or telling you to talk to your CPA about a tax filing mistake.
If we’ve helped this many people without meeting a true disaster, I guarantee you that you aren’t one.
Reason 8: Retirement should never be affected by student loans
You or someone you know might have taken on a ton of debt to send their kids to college. Maybe the debt was even for you to go back to school for a second or third career. While most of our clients are in their 20s, 30s, and 40s, we see clients in their 50s to 70s who assume retirement is out of reach because of their student debt.
As long as the debt is federal, there are so many things that can be done. From filing taxes separately, consolidating your loans, setting them up on ICR, or planning to pay a minimal amount until death while claiming Social Security late, there’s always a trick to use.
That means your retirement goals should not be significantly delayed just because you have student debt.
Reason 9: You’re in a career with higher earnings or enjoyment
Hopefully, you are doing something:
- You love more than if you had not taken out student debt
- Where you earn more money than if you had not taken out the debt
Most people go to vet, med, dental, law school, etc. because they’re passionate about the field and they can’t really imagine doing something else.
If that’s you, count yourself lucky. If you’re ho-hum about the career but you make a lot more money than you would’ve with your bachelor’s degree, then at least you made a sound financial investment.
Reason 10: You don’t have to be in a career just because of student debt
However, if you feel like you made a terrible mistake going to grad school and wish you could do something else, you can.
Recall you only need to pay based on your income. If you want to quit your job as a chiropractor or attorney to open an artisanal mayonnaise store in Brooklyn, you can. As long as your loans are federal, you can use something like REPAYE to get an interest subsidy and pay as little as $0 a month.
If you become the next big hit at Whole Foods and get nationwide distribution, you can pay off your debt easily. If you have more average success, you can continue paying a percentage of your income.
You are in the top 10% of wealthy individuals with student debt
By virtue of having an education at all, you’re probably in the top half of American society economically. With a graduate degree, you climb further still.
Compared with the rest of the world, you’re easily in the top 10%. My wife and I went on a trip to Ethiopia where we saw boys 20 years younger than me riding alone on top of buses traveling at 50 MPH because they can’t afford to sit inside.
I watched a documentary on Netflix about the American West, and about 100 years ago we had people ride on the top of stagecoaches.
This holiday season, be thankful for student loans, no matter your debt. You’re in good shape, and you can achieve whatever goals you set your mind to. Enjoy the turkey, and if you need help, get it.
What are you thankful for this Thanksgiving (even though you have debt)? Share below.