This article is supplementary to my chapter in The 7 Year Mortgage and Debt Free College Degree published earlier this year.
What does the student loan debt look like on a national scale?
There is $1.3 Trillion, with 44 million borrowers, who have an average debt of $40K each and the default rate is over 11%. What may have caused this debt to become so pervasive? You could say it has been subsidized with the help of the government, just like “Fannie Mac and Sallie Mae” buying up all of the bad mortgages to keep the system afloat, and just like the government health care plan along with health insurance, more subsidies that have caused prices to explode. Anytime you make it easy to go into debt, you get more debt, just like the home appraisal process was abandoned about a hundred years ago, from pricing homes in terms of labor and materials costs together with a builder's premium, now the home prices have no limits because they are based upon the prices for which other homes are being sold. Student loans are no different.
The United States Government allowed the creation of securities for these student loans, in fact, it went a step further and guaranteed them to investors. They are known as student loan asset backed securities (SLABS – bonds). Because the government guarantees and collects these debts administratively, without having to sue in court (like the IRS), investors are betting on the government's ability to take or coerce payments from borrowers. These investors are not concerned with people getting an education, they just want a return on their money from this system of usury.
This is not the way to invest in the education of young people for the future, it's just a way to make money without any moral consideration. What can students do in a situation where they have too much debt or cannot pay (in default)? We can first look at this from the debt collections phase; first, you want to use available procedures, such as settlement or payment options, to mitigate the re-payment. It's a good idea to be sure you organize your cash flow and property rights so that none of them can simply be taken through an administrative levy. This means cash flows and property titles and other property rights should be held in the names of tax deferred and tax flow-through structures, limited liability companies are the easiest and most effective and least costly. Trusts are also good, but those can be costly and have many restrictions. The same may also be try for C-corporations, it's important to review these structures yourself, but I am recommending the use of one or more limited liability companies. Once you are finished using them, you can sell them as “shelf corporations” so in the long term, these may cost nothing.
The only risk you have that cannot be eliminated is “W-2/W-4” wage income, if you have this, and cannot change your type of income to self-employed or independent contractor, get into a workout program or use student loan procedures to negotiate. I'm not promoting any service here, but a quick search online showed that a company by the name of Global Bridge Holdings specializes in student loan workout programs. These would be the last efforts if all else fails. As you'll learn here, you may never have to get into this situation if you follow the other recommendations.
The Department has what it calls “Standardized Compromise and Write-Off Procedures” for use by guaranty agencies. These are for negotiated agreements between borrowers and guaranty agencies to accept less than full payment as full liquidation of the entire debt. To summarize the guidelines, collection costs can be waived and as much as 30% of principal and interest can be waived. If a guaranty agency chooses to compromise more than 30%, it cannot waive the Department’s right to collect the rest. It is possible to change your payment plan to drastically reduce the amount you are paying, even down to nothing, based upon your income.
There are also employer Loan Repayment Assistance Programs (LRAP), either your employer has one or you can negotiate one as part of your compensation)
You can also transfer guaranteed student loans to unsecured credit cards. There are no guarantees and will impact your cash flow the least.
This is probably the most important one but keep in mind that what I'm going to explain here, is something that can and should be done by everyone. In fact, this technique is what the rich people use to pay for their expensive toys. Acquire assets or build a cash flow asset and use that to offset the student loan debt situation, this can be done no matter how much debt you have or what types of debt, even if you have judgments and active levies. Consider buying into a cash flow, or brokering the sale of real estate by taking an interest in the title with an options contract, or buy local assets, like that car wash down the street. You want to buy assets to offset the liabilities of a student loan. This is explained in greater detail in my book.
Additionally, the Federal Ombudsman is "a neutral, informal, and confidential resource to help resolve disputes about your federal student loans." If you have a loan dispute that you simply can't resolve in any other fashion, contact the ombudsman. Such disputes could include discrepancies about federal loan balances; issues related to default, bankruptcy, tax offsets and other concerns; and questions about postponement, discharge and forgiveness requirements.
How can students avoid this type of debt in the first place?
Plan ahead to avoid taking on long term student loan debt by leveraging cash flow and assets to offset the costs of tuition.
Parents should never co-sign or show that they are eligible to be guarantor or co-signer for children attending college.
Use an asset to pay for college. Here is an example, it's not really using an asset, just some equity that you might have in property, even though it is a liability. Use short term debt (real estate with clear title, write a short term note on 25% of the property value and sell it in peer-to-peer lending, pay it off and then do it again in series)
In some professions, you can gain competence without enrolling, sounds crazy, but this might be worth considering. My daughter wanted to attend art school, and it's not that I'm cheap, but rather, I'm practical. I know that she's not going to use her degree to qualify for a job, but she will be able to use her qualifications to make money in a business venture. So I explained how she could rent a luxury apartment near campus and let two students room with her for free, the only condition being that they include her in their art lessons and activities.
What alternatives are there for people that want higher education for the advancement of a career that would support their families? You can find apprenticeships or get vocational training, you don't need a four year college degree to be successful and find a career that will lead you to a prosperous lifestyle.
Consider learning important things so that you can be self-reliant, such as basic home wiring, plumbing, gardening, composting, canning, saving seeds, for food, along with water, sewage and rain filtering. Learn net metering practices to reduce your costs for energy. Learn a useful trade, such as mechanics, carpentry and landscaping.
Don't plan on going to college for useless degrees in things like “social justice” and public relations or practicing law, etc.
Look for apprenticeships, you can find services (browsers) that can connect you with apprenticeship programs, two I found include www.careeronestop.org and www.mynextmove.org.
Do your own research about what qualifications are required in the field you want to work. Example, instead of going to veterinarian school to be an employee veterinarian, contact a business broker and look for veterinarian businesses for sale and buy those assets.
Look for vocational training scholarships or simply pay far less for vocational training to get near the profession you want. Here is one website that explains the opportunities, again, I'm not promoting anything in particular, http://www.collegescholarships.org/scholarships/vocational-school.htm
In summary, a quality or formal education is important at least through the age of 25 and you can get it with little or no debt. Taking on too much debt too early in life may seriously diminish your ability to acquire a size-able net worth. Build upon skills that help you offset liabilities with assets and this will be a skill you will use for your entire life, no matter what your vocation or educational background.
