I’m sure you’ve seen the news about the student loan “bubble” that’s 1 trillion and growing. How poor students are being crushed under debt and their future lives completely ruined.
Well, turns out there’s a solution to all of this but it’s not widely known. Follow these three steps and watch your student debt troubles disappear.
Step 0 – Get the right loans
This technically isn’t a step, but it’s an important caveat nonetheless. Your student loans must be federal or else nothing here applies.
If you are using private banks to fund your education, stop doing that and switch to Federal loans. Take out additional Federal loans to pay down the private loans if you must.
Step 1 – Get on the IBR Plan
Get setup with an income based repayment plan. To qualify, your loan payments must exceed a certain amount. Here’s the full definition:
You have a partial financial hardship if the monthly amount you would be required to pay on your IBR-eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under IBR.
Since IBR payments are capped at 10% of your income, this means if your payments amount more than 10% of your yearly income you are eligible for the IBR plan. It used to be at 15% but Obama lowered it to 10%.
You also pay zero dollars per month (or an extremely low amount) the closer you get to the poverty level. For example:
Hmmm… paying $16 for my loans no matter how big my original loan size was sounds pretty good to me. You can play around with the IBR calculator here.
The IBR plan has a lifespan of 25 years, which is a long time, after which any additional amounts you owe are discharged. Depending on the state you are in, the amount discharged will be tacked onto your tax bill. But to avoid this sum you can just threaten bankruptcy, and most likely get the amount you owe reduced somewhere from 80-90%. And if they call your bluff, just declare bankruptcy and avoid any leftover debt. Make sure your big purchases are secured before you do this, and talk with your accountant/tax attorney to learn how to move assets to states that do not allow assets to be confiscated during bankruptcy.
Step 2 – Under-report your income
Right now you’re probably thinking this IBR scheme is just to help out broke students who choose lousy majors like women’s studies. Although I want to help them too, this article is intended for all income levels.
Let’s say you sign up for IBR now, but end up making big money in the future. How do you keep those IBR payments down? Just find ways to legally keep your reported income down. Work in cash. Get paid as a “gift”. Talk with your accountant and ask what you must report and what you do not. And if your accountant doesn’t give you any good ideas, find a new accountant. My accountant saves me thousands every year.
Let’s say you make 40K per year, but manage to report only 30K of it. You’ll save yourself hundreds on your payments for that year, on top of the taxes you avoid.
Step 3 – Let Inflation Take Care of the Rest
Inflation is a fact of American life. Since the IBR is paid over 25 years, can you imagine how much value the dollar will lose in that time? 25 years ago, gas was less than a $1 a gallon. 25 years from now, gas will be over $10 a gallon.
What does this mean for you? Well, do some math. If you have 100K in the bank and the dollar loses 25% of it’s value in the next 25 years, then the real value of your savings is now 75K. Inflation makes it tough to save.
But the reverse is also true: Inflation makes it easy to borrow. Because if you have 100K in debt and the dollar loses 25% of it’s value over 25 years, it means you’ll have effectively only paid back 75K in real value, which is a net savings of 25K.
In other words, the value of money during inflationary times has more marginal utility in the present than it will in the future, so debt is one of the most profitable investments since you’ll pay back less than you spend now.
I know that the interest on student loans means that overall savings from inflation might be neglible. After all, if your 100K loan at 6.8% becomes 200K in 25 years than the 25% you save on the dollar devaluation isn’t much.
But if you follow steps 1 and 2 above, it means you’ll be finding ways to make hidden sources of income so that what you do pay back will be low payments with severely devalued dollars. Congratulations: you win. And anything left over can be wiped with some bankruptcy threats if not a flat out bankruptcy itself.
Now, you may ask yourself: isn’t this wrong? Even if this is all legal, isn’t this… stealing? No, it’s justice. Because any student that scams the US Government out of the loan money using the above steps is doing his part to help bankrupt the US Government and hopefully bring about real hope for change.
Disclaimer: I’m no accountant or tax attorney. Make sure you talk with one of the two to avoid doing anything illegal. The IRS will destroy you if you give them the chance. That said, the above loopholes will give you a head-start.