How the American Dream has become the American Nightmare and how to fix it. Part 1: Student Loans

After World War 2, my grandfather started sorting mail in the basement of American Electric Power, a Fortune 500 company, and by the time he retired, he had risen to the rank of division manager. He eventually became a lobbyist for AEP, which lead to a long career in politics during his retirement.  However, my grandfather had no “formal education,” merely a high school diploma.  Due to some of the obstacles he faced while climbing the ladder without a degree, he was determined his children and grandchildren would receive college educations to give them the advantage he didn’t have during his career.  Fortunately for myself and my sister, my grandfather invested in companies such as Coca-Cola and The Walt Disney Company and left his estate for our college education.  Thanks to his investing and care for his family, my sister and I were able to graduate with our Masters Degrees debt free, but most aren’t so lucky.

When I first met my wife and we started dating she informed me of her student loan debt of around $80,000.00 at the time, plus interest.  Since she was working 2 part time jobs at the time, she had been put on a “income-based repayment plan” and was paying just under 400 dollars a month.  I didn’t think much of it at the time as I didn’t understand the loan process since I never had any federal student loans.  Later when we were reviewing our credit to purchase our home, I discovered something truly amazing: my wife had a larger student loan principal balance at the end of the year than what she began with!  At first I just couldn’t comprehend it.  Why would the government intentionally set her payments at such a low minimum payment that it would guarantee she wouldn’t ever pay them off?  How could that not be a criminal act, to intentionally set up someone for a lifetime of payments for a debt they could never repay?  The more questions I asked, the more upset I became.  Our government in its infinite wisdom, while attempting to help people become more educated with higher paying jobs, had effectively enslaved an entire generation with burdensome debt they could never repay, and couldn’t discharge even in bankruptcy! 

For as long as I can remember, my teachers continuously preached that the only pathway to success was through college.  They even doubled down forcing all students to take an annual exam in high school that showed us what occupation would best fit us, and what degree we would need to obtain to acquire that job title. Both of my parents were teachers, and as I look back now the irony that they now pay their mechanic more per hour than they made when they retired is overwhelming.  Even more ironic is the fact that I wanted to be an electrician, but since that didn’t require a liberal arts education with at least a Bachelors degree, my parents refused, stating I needed to go to a “real college” and get a liberal arts education.  As a result, I now pay my electrician twice my hourly wage. An entire generation of students was lied to, and the result is the student loan crisis.  The student loan crisis while creating its own problems created a secondary problem: a lack of students to enter the trades such as electricians, plumbers, mechanics and skilled carpenters.  After all, we were told for nearly two decades that the only pathway to success was college, so why waste our time in trade school?

How in the world did we get into this position and how can we fix it?  How did we as a country get to a point in a program designed to help its citizens put them in nearly 2 trillion dollars of debt, not including interest? Keep in mind the average total annual income of all federal taxes is 3 trillion dollars, so student loan borrowers owe the federal government nearly 2/3 of all the income the government makes in an entire year from all taxes, fees, and revenue sources. The answer is simple: an entire generation of students did exactly what they were conditioned to by our public education system: they went to college.

The idea behind federal student loan programs was simple: invest in our citizens, so they could become more productive members of society, earn higher wages, and help expand our economy.  The problem, like most government programs, it backfired.  The problem was simple, and the solution is even more simple and recently was implemented, although on a short-term basis. So what is the solution to the nearly 2 trillion dollar student loan debt crisis?  The answer is to suspend interest payments.

As part of the response to COVID 19 and its toll on the economy, President Trump suspended student loan interest indefinitely.  Suspension of interest rates on student loans is the answer to the student debt problem and I have been screaming for years that this is the only feasible response.  Forgiveness is not an option, as that will take us down a road to destruction of our entire economy. The average federal student loan interest rate is just under 6 percent.  My wife’s average interest rate was 7 percent for her degree she obtained in 2010.  While the FED was holding interest rates below 1 percent due to the recession in 2008, they were handing out student loans with 7 percent interest rates!  Suspending interest rates will allow students to repay their debt, and allow them to contribute to the economy, the entire intent of the program. As a way to encourage student borrowers to indirectly join the FIRE community and encourage debt to be repaid quickly, I would personally like to see a progressive interest payment system in the future.  For example, the first 3 years after graduation for a Bachelors degree would be interest free, 5 years for a Masters, and 7 years for a PHD level of education, followed by a 1 percent annual increase.  This would encourage loan holders to pay off their loans quickly, and simultaneously complete the mission of the loan program, to empower our citizens to lead a better life.

How we destroyed our student loans

Our personal struggle with our student loans really goes back to the first step, which is admitting you have a problem.  When we met, my wife had around 80k of student loan debt, plus interest.  We didn’t realize it at the time, but this debt was a crushing burden on our finances.  Even though the loans were in her name, I considered them my debt as well because they directly impacted our household expenses.  One of the failures in relationships about debt I often see is the idea that student loans are “his or her debt” when in reality since they impact net household income, they are the responsibility of both parties.  Once we realized this debt was a problem, and that her income-based repayment plan was actually adding to her principal balance, we formulated a plan to eradicate her loans.

The plan was simple, we doubled her minimum loan payment, and would continue to do so until the loans were repaid in full. This action meant significantly more money was going towards paying down her principal balance, instead of adding to it with the income-based repayment plan. Since we were a team now sharing expenses, my contribution towards our daily living expenses allowed her the opportunity to contribute to more to her student loan debt.  Remember, having a teammate in this process is the single best thing you can do to battle debt.  Then at work one day sometime in 2018 we were presented with an opportunity to pay off the remaining balance, without changing jobs, moving, or making any other drastic moves, we simply had to fill out some forms and send in some information and boom, our student loan debt was a thing of the past!

What exactly did we do to erase the 40K remaining student loan debt? No we didn’t take 40k out of savings, or have a rich uncle who left us 40K in their estate as some other financial bloggers have done, our facility was purchased by a Indian Health Services provider, making my wife eligible for the Indian Health Services Loan Repayment Program. This program offered to pay 20k a year, up to 3 years, for a grand total of 60k of student debt, simply for working at the facility where we were employed!  Furthermore, since Uncle Sam in his infinite wisdom considers this loan forgiveness program “taxable income,” the program includes an additional 6k per year to pay towards federal income taxes.  The only thing that had changed was the name on the building and some administrative staff, but this opportunity was given to us thanks to our new company moving into town.  My wife applied for the program and a few short months later she was accepted to the program! In December 2019, the money arrived in my wife’s account and she began paying her student loan payments from the new account we had set up with IHS!  When we knew she was accepted into the program, we reduced her monthly payments back to the minimums, as we knew the money was coming and we would have more than enough from the loan repayment program to pay off her balance.  We had paid down 40k of principal on our own between 2015 and 2019, and thanks to the IHS loan repayment program, we now no longer have to make student loan payments with our own paycheck.  

For anybody in health services, I strongly urge you to check out the Indian Health Services Loan Repayment program.  This program is available for a range of professionals from doctors and nurses to therapists and social workers.  I helped my wife apply for her repayment program, and then assisted 3 nurses and 1 therapist through the program this year, all of which have been awarded the program!  This program is a great recruitment and retention tool as well. To date, this is the best program I have discovered for health professionals as it truly offers you twenty thousand dollars a year to work in the field you have chosen, with locations ranging from Florida to Alaska. For those of you not in health services, I strongly encourage you to explore options in your own field because, “you don’t know what you don’t know.”  Although my wife and I had worked in healthcare for 8 years, we had never heard of this program before, and had the new company not acquired us, we probably still wouldn’t know the program existed today.  There may be opportunities out there for you in your field that you simply don’t know exist, which could be costing you dearly.

In summary, we all only have one life to live, and we need to live it to the best extent possible.  Time is the most precious asset that any of us have, and none of us can buy more time on Earth.  The student loan debt crisis will continue to spiral out of control unless student loan interest rates continue to be suspended, and a program is implemented with little or no interest to allow new graduates the ability to live a productive, meaningful life without going bankrupt and support our economy.  If you have student loan debt, explore all options for repayment in your field.  Ask around, and you may stumble onto an opportunity like we did!