How to finally free yourself from the Shackles of Student Loan Debt — A Personal Perspective
As some of you may know from many of my blogs or vlogs on YouTube, I had almost $200,000 in student loan debt that I finally paid off around early 2020. I finished all formal school where I incurred those awful loans in 1999.
It took almost 20 years to get rid of those debts. When I first graduated, I put my student loans in deferment for 6 months and then in forbearance for as long as they allowed. Little did I know that when I put my student loans in forbearance, unlike deferment, interest was being added to my student loans so my balance was just increasing.
In 2012, I had the bright idea that I wanted to be debt free starting with the student loan. I truly believe that had I not made that decision I would still be paying student loans today. At that time, my son was 4 years of age and my daughter was 7.
My thoughts started to think about their future and my present circumstances. If my financial condition stayed the same into the future, I considered whether I would financially be able to help them if they wanted to go to college. I was working as a solo practitioner and I was barely on the upside financially. I just didn’t see how I could have any money left over if I needed to help them pay for college. So I started paying attention to how the bulk of my money was being spent at that time. I didn’t have a lot of credit card bills, so my money was split mainly between, basic house food and car bills, day care, tithes and offering to the church, and student loans.
I started asking myself when are these student loans going to be paid off. Truth be told prior to 2012, I never actually knew when the student loans were scheduled to be paid off; I didn’t care. Once my forbearance period ended, I just asked the loan servicer for the lowest monthly payment I could make. I needed to avoid default and not have to worry about my law license being suspended. I then just started paying that amount and forgot about it.
But in 2012, I wanted more. I was tired of paying student loans and I was ashamed that I had no clue when I would be done paying for them. So I put my shame to the side and I picked up the phone and called Sallie Mae and humbly asked, “Sallie when will I be done paying you?” Sallie replied with some year way in the future. When I used my fingers to calculate, that year had my son almost 40 years of age. I then replied, “Sallie that can’t be right; I been paying you for a long time. My youngest child will be almost 40 years of age by the time I finish paying that.”
The nice lady on the phone probably thought I was crazy but I really wanted to understand how after all those years of payments, my balance was barely changed. She begin to explain to me how my monthly payments were being applied. And she showed me how capitalized interest was being added to my balance each month despite my timely payment. Each month, several hundred more dollars were being added to my account for capitalized interest. This blew my mind. My monthly payment was paying very little of principal. And despite paying on time, I could not avoid the capitalized interest that was making my balance higher each month. This seemed so wrong.
I was paying a debt that was accumulating more debt. I was between 17 and 20 years of age when I entered into those loan agreements. I didn’t understand them. My parents didn’t’ understand them. I was now a lawyer and truth be told, I still didn’t understand them. These types of loan agreements given to impressionable minds seeking only to learn should be criminal but they are not. To me student loans are only entered into under duress and should be unlawful.
I stopped Sallie as she was explaining and I said “Sallie I can’t keep doing this, I have children that will eventually be going off to college; I need to pay these dang student loans off.” And better yet, “how can I avoid the capitalized interest that is ridiculously increasing my balance?”
So then I started throwing out years. I said, “Sallie if I wanted to have my student loans paid off by 2017, how much will I need to pay?” Sallie then gave me a number. “Damn Sallie! That is a lot. Ok, what If I wanted to pay by 2020, how much will I need to pay?” Sallie gave me an amount that I could not pay at that time, but at least now I knew what I needed to pay. I now had enough data to make a real plan. Below are some other legal-minded things I considered in making my plan to rid myself of student loan debt.
I considered as part of my plan to be done with student loan debt the following strategies: (1) run out the statute of limitations; (2) settle with creditors for less than what was owned; (3) just pay as little as possible and die owing student loans (what a legacy!); (4) hire a debt settlement company to help me; (5) refinance; or (6) increase my payment.
(1) To run out the statute of limitations, it would have required me to stop making payments to create a default.
A statue of limitations is the lawful amount of time a creditor has to sue you in court for a debt after it has gone into default. A default on a debt is like a breach of contract. For example, in Texas the statute of limitations on a breach of contract is 4 years. After that time, a creditor can sue you for the debt, but you have a great defense to win. Be aware, creditors sue all the time for what us lawyers call “stale debt” but if you don’t defend the suit, creditors can obtain a judgment against you for a debt that could have been defeated if the proper defense was made.
Federal student loans don’t have statue of limitations. However, private loans are subject to the state’s statute of limitations.
When a federal student loan go in default, you can be charged almost 25% a year until you get it out of default. Also if a federal student loan go in default, they can garnish your wages, garnish your social security, etc. This debt stays alive until your death. Death or full repayment is the only cut off for federal student loan debt. Thanks to our current President, it’s very challenging to get a student loan discharged in bankruptcy.
When private student loans go in default, they generally have to abide by the state debt collection laws. Private loans are either going to be by oral agreement, written agreement, promissory notes or open-ended accounts. For most people, their private student loans were by some kind of promissory note, credit cards or lines of credits. My private loans were all promissory notes with different private banks. For these private loans, if you default by non-payment, the statute of limitations clock begins to tick.
However, there are many things that an unwary debtor can do to restart the clock so this strategy can be tricky.
I was not ready to deal with the credit collection calls, wage garnishments, lawsuits from defaulting on the loans, so this option just wasn’t viable for me and where I was in my life at that time. Also, because most of my student loans were federal, running out the statute of limitations wasn’t a real option.
(2) I thought about contacting each of my student loan creditors and making an offer to settle for less. The problem with that was incentive. I didn’t have the money to make a lump sum payment so what incentive would the creditor have to take less principal for the same or little more monthly payment. I didn’t see a creditor taking a settlement unless I was willing to pay some lump sum amount which I could not financially do at that time. Also, even if I could, there are some pitfalls to paying less than what was owed like: it could damage my credit which I had been working hard to increase or it could cause a taxable event for the difference unpaid. This didn’t work for my plan either.
(3) Pay as little as possible. I was already paying as little as possible and more than likely if I would have kept paying it that way, I would die owing student loans. After all those payments over all those years, my balance barely changed. Unbeknownst to me, I had been working this plan since I started paying back my student loans in early 2000. This plan didn’t work for me anymore either.
(4) I could have hired a debt settlement company to help me but the problem with those companies are their high fees. With the amounts they would charge me to try and settle the debt, I could have made several extra payments.
(5)(6) I actually used this combo to knock out my student loans. From 2012 to 2018, I gradually increased my student loan payments and paid them earlier in the month so that I could eventually reduce to null the capitalized interest that was accruing each month. As car loans got paid off, I redirected those funds to my student loans. I also stop being as religious over time, so the church was not getting all my money in tithes and offering, which made more dollars available to me to use to pay toward my student loan. Then in 2018, I refinanced my federal student loan balance with Sofi at a lesser interest rate for five years and that saved me over $25,000 in future interest on one loan. And then I calculated just what I would need to pay each month to have my student loans paid off in 2 years. I executed that plan. And by the beginning of 2020 I was student loan debt free.
Student loan debt is like imprisonment. It’s time we stop being in these shackles. Until we can get the government to change the system of financing education, we have to come up with our own custom plans to pay off these debts or better yet, not get student loan debt in the first place.
We can create a new system for school that doesn‘t cost a person their financial future at 18. No one owns a copyright on education, but in a lot of ways it’s like the student loan lenders do and the student loan repayments are the lenders’ royalty payments. Maybe we need to move to more of a creative commons license for education.
If you have student loan debt, hopefully the above strategies are helpful to you in some way to create a plan to pay off your student loan debt too and free up your finances to help your kids not have to incur student loan debt to get an education that should (in my opinion) be free or as close to free as possible.
It was only when I started to be available to myself to know myself better and desire a better present life that I came up with the plan to pay off my student loans.
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