Are you familiar with shady student loan practices versus legit ones that actually help student loan borrowers? In this episode, the Student Loan Planner consultants — Travis Hornsby, Justin Harvey, Rob Bertman and Lauryn Williams — discuss what type of strategies to steer clear of and which ones could potentially save borrowers both money and stress.
In today’s episode, you’ll find out:
- Whether a borrower should claim that they can’t access their spouse’s income information
- How student loan repayment strategies can sometimes lead to divorce
- If starting your own 501(c)(3) for loan forgiveness is a good idea
- How being small business owners can affect student loan repayment
- Should you use your pay stub or your tax return to recertify income
- How a sudden change in salary could affect your income certification
- Why researching any financial adviser you plan on working with is critical
- Can you use last year’s tax returns to certify income?
- What the breadwinner and reverse breadwinner loophole is
- Is moving abroad to avoid student loan payments a legit strategy?
- What the die-with-your-debt strategy is
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Episode 26 Transcript
Travis Hornsby [00:00:00]Welcome, Student Loan Planner community. Today I’ve got a real treat for you. We have all of the Justice League assembled in one place. I’m joking, of course, because we have all of our student loan planner consultants on the podcast today. So, what’s going on guys?
Justin Harvey [00:00:13] What’s up, Travis? Great to be here.
Rob Bertman [00:00:15] Hey, Travis.
Lauryn Williams [00:00:16] Hi. Hi everyone.
Travis [00:00:17] So we’ve got Justin, Rob and Lauryn, and we’re going to talk today about something that’s pretty interesting to me. We’re going to talk about shady loan strategies and legit loan strategies. We’re going to debate it, and then we’re also going to go into a couple examples of just, like, client situations we’ve seen in the past couple weeks. Because I know that we’ve gotten a lot of feedback from you that you would love to hear more of the consultants and not just me. And Student Loan Planner at this point is actually more of the three other people on this call than me. So let’s just jump right into it.
Whether a borrower should claim that they can’t access their spouse’s income information
Travis [00:00:46] The first strategy I want to debate is — I get this one all the time, I don’t know about you guys — but “I can’t access my spouse’s income information.” What do y’all think about that?
Justin [00:00:55] I think this one’s funny because, I don’t know what you guys hear, but I regularly hear servicers actually advising people to check that box. They say, “Listen, do Revised Pay As You Earn (REPAYE). Check this box. If you do that, your payments are going to be way less.” And I tell them, “Well, I think what’s happening is that the servicer is kind of telling you to commit fraud. And this box is intended for if you’re legally separated or in some kind of domestic abuse situation and you’re actually telling the truth when you check the box that says ‘there is no way for me to reasonably access my spouse’s financial information.’”
Lauryn [00:01:28] People get pretty upset too because they’re like, How could the servicer be wrong?” And one of the things I often have to explain is this idea that the people on the other end of the phone are frequently wrong, and they’re not trained in any, you know, financial expertise or any area beyond the actual training they get and, you know, are frequently just reading from a screen.
Lauryn [00:01:45] So, that debate back and forth with the client of whether I’m right or the person on the telephone was right is one of the things we come up against too.
Rob [00:01:53] Yeah, and I’d just add to that just saying that a lot of times people file their tax returns jointly, and then they say that they can’t access their spouse’s income. Well, if you’re looking at the tax form, you have to sign it. And if you sign it, then you’re sort of acknowledging that you can access the information, that you’ve actually seen the information on the tax return.
Rob [00:02:10] So it’s —
Justin [00:02:13] Busted.
Rob [00:02:13] Right.
Travis [00:02:16] Yeah, you know, like, it’s funny too because like a lot of the people that I see comment about it they’re like, “Well, this is wrong. Like, they should not be able to force me to share my, like, spouse’s information when I don’t want to.” And I’m like, “Well, dude, like, I don’t want to pay, like, high taxes.” You know? I don’t want to — Like, I would like I wish Social Security was optional instead of mandatory so I could like go invest the money instead. But, like, that’s not an option. You know?
Rob [00:02:36] I mean, at the end of the day, I just I feel bad for a lot of the borrowers out there because they’re getting all this misinformation, kind of to your point, Lauryn. Sometimes it’s not even the person who has the student debt. It’s not even their fault. They’ve just been advised wrongly by someone that they trust or someone that they should be able to trust, and then it puts them in a bad position.
Justin [00:02:53] That’s right. A lot of borrowers, I think, they’re willing to pay what they owe in many cases, and they’re just — they’re trying to figure out the best strategy. And they can’t objectively know the best strategy. It’s kind of similar to taxes in some way where it can be very complicated very quickly. And if you were to say, “Listen, here’s the number you owe,” people — generally, they want to pay what they owe to the extent that they possibly can.
Justin [00:03:14] But when it gets so complicated with, ‘What do I even owe? What’s the right way to do this? Where do I get good information?’ Because borrowers can’t find the right answer to that question, they’re often hamstrung and don’t know how to proceed.
How student loan repayment strategies can sometimes lead to divorce
Travis [00:03:26] So I think that there’s a couple better options than saying that you can’t access your spouse’s information, right. So you can do Pay As You Earn (PAYE) or IBR (Income-Based Repayment), and you can file separately and legally exclude your spouse’s income information in terms of the payment calculation.
Travis [00:03:39] And then if you — The only scenario that I can think of where you could possibly have it benefit you in any way is if you’re doing the Revised Pay As You Earn program and filing separately because then maybe you have a legal argument that, ‘Well, I don’t know my spouse’s income information because we file taxes separately.’.
Travis [00:03:55] But that — What’s an even better scenario there is just don’t get legally married. We have a lot of people that — you know, I don’t know if y’all have had as bad situations happen to you as me. I had a couple of cases where people actually literally decided to strategically get divorced during the consult. So that is a real risk that we have to disclose of getting a plan from Student Loan Planner is ultra-rational partners might be like, “Well, OK, we’ll just, like, do the $300 divorce option, and now we save $5,000 a year.” And as soon as they did that, I was like, “No, no, no. Please don’t. Let me just run the numbers. Make sure and cover my bases. If you’re going to do that, I want to make sure it’s really freaking accurate.”
Rob [00:04:34] Yeah, for sure.
Justin [00:04:36] Yeah.
Travis [00:04:36] You haven’t had anything like that happen, right?
Rob [00:04:38] I had one of those last week actually with a couple. And one of them had massive student loans. The other one didn’t. And they were — At the end, they were like, “Maybe we should just get divorced.” And I said, “Well, is that something you’ve discussed?” And he said yes. And I said, “Well, you know, that’s totally your call.” You know, it just depends on if the cost is worth it to you. You know, if you going to save $5,000 a year and that’s worth it to be divorced, you know, just make sure — If anyone ever brings it up, I usually advise against it.
Rob [00:05:02] But I just say, “Hey, if you are going to do that — I don’t recommend you do that, but just make sure you’re talking with a high-quality estate attorney who can actually set up your stuff legally as if you are together.” Especially if there are kids involved — because in this case, there were two kids involved. The last thing you want is the courts to decide who takes care of the kids and who handles the money because you want to save $5,000 a year on your student loans. So working with an estate attorney before coming to that conclusion is probably a must.
Travis [00:05:29] I just have to say I’m really lucky that we paid off our student loan debt because if some consultant told Christine that she could dump me for, you know, $5,000 a year savings, I’d be in big trouble.
If starting your own 501(c)(3) for loan forgiveness is a good idea
Travis [00:05:39] Moving on. Shady strategy number two. Starting your own 501(c)(3) to get Public Service Loan Forgiveness (PSLF). So I’m going to go, and I’m going to start my own nonprofit organization. I’m going to be CEO of it, and I’m going to have my board, you know, hold minutes and everything. I’m going to get all my loans forgiven tax-free. What do you all think about this one?
Rob [00:05:59] Oh boy, that’s — that’s super risky. I mean, I had one call where someone was thinking about it or they maybe — Oh, actually they said that their friends were doing that kind of thing. And I said, “You know, it’s one thing to commit fraud on your student loans. It’s another thing to have a problem with the IRS.” The IRS is a totally different ball of wax. They will track you down, and you could have severe penalties beyond just, you know, giving up loan forgiveness. It’s just trying to get a benefit to federal loan payment.
Travis [00:06:26] Justin, Lauryn, what do you think?
Lauryn [00:06:27] I echo Rob’s sentiment in the sense that it’s a lot of paperwork. It’s a lot of hoops to jump through, and you’re really trying to work the system whenever you do it. I mean, at the end of the day, setting up a 501(c)(3) is really about creating something that’s going to make America better. So the intent is the biggest deal here, is ‘I’m doing something that’s going to benefit me’ when the intent of a 501(c)(3) is to benefit others, benefit the community, to continue to improve society as a whole.
Lauryn [00:06:57] And so I think we should be continuing to focus on that and continue to spread love and abundance. And, you know, these ideas that I own my student loan debt, and I need to make the best strategy on my debt. But I’m not going to make this strategy based on something that is not of good intent.
Justin [00:07:12] Yeah. And I always just encourage people, whether it’s this issue or a similar [one], act in such a way that you’re going to be able to sleep at night because at the end of the day, life is not about financial optimization. It’s about being the kind of person that you’re going to be happy with and proud of. And if you’re going to start a 501(c)(3) and, you know, function legally, actually in that organization to be able to promote some kind of social change or whatever, then great. And do it. And you might have to argue to the IRS that it’s a legal strategy. But if you’re sleeping well at night and you have the proof that you’ve done what you’ve done, and it seems to be all buttoned up, then great. Good for you. But as a work-around strategy to try to cheat on your loans, do you really want to be that kind of person? I hope not.
Rob [00:07:55] Yeah. I think part of the problem, too, is just that right now, it’s kind of like the Wild West out there, where all these programs are so new and there’s so little people having success at this point. You know, that’s going to change over the next couple of years as more people have Direct Loans eligible for forgiveness, but people don’t really know if there’s a downside or not. Once the government finds out or the IRS finds out about these strategies, there’s going to be some crackdown. But we haven’t seen any yet because, you know, no one’s really gotten to that point where they’re really taking advantage of the rules that way.
Rob [00:08:25] Totally echo what Lauryn said. You know, if you want to make the world a better place and that is the intent and it’s a legitimate strategy, then by all means. We’d love to have more do-gooders in the country. But it’s just something to proceed with caution. I mean, we don’t know what’s going to happen, and that uncertainty scares me, especially when we’re dealing with IRS issues.
Travis [00:08:44] Sure. But crackdown implies that they know what the heck’s going on in the first place.
Rob [00:08:49] That’s true. I mean, it could be that there’s going to be so many people using so many different strategies that they might not be able to do it. I don’t know.
Travis [00:08:57] I think when they start having the negative headlines. When PSLF starts happening in mass for lots of physicians that are making six-figure incomes, I think that it would be foolish not to expect very, very negative headlines. And that’s something that’s going to happen, and you just have to be comfortable just having that kind of headline happen and just not reacting from it because I think that a lot of people are not really that aware of the program. Like yeah, like, the niche sites and, like, the fifth page of The Wall Street Journal, you know, has done a lot of topics about how PSLF is going to people with an average loan balance of $90,000 when the average balance overall is $30,000. So it’s clearly something that’s helping people with more-than-average debt. But I think that the big thing is just you — you just can’t react, but —
Travis [00:09:41] But let’s keep moving with some of these shady strategies. What are some other ones that maybe I didn’t think about? Put your criminal hat on and think of the sketchiest thing you can think about. Is there anything real bad that we haven’t talked about?
How being small business owners can affect student loan repayment
Justin [00:09:52] I had a case the other day, Travis, and I’d be interested to hear what you think about this. I had two spouses, one of whom was a borrower. That was the husband that had $220k of loans, and the wife had no loans. They both worked for the same business that the husband owned and operated, and he had $150 — or sorry, $100k of income of AGI (Adjusted Gross Income), and she had $50k. And so in this situation, all the loans were his. You know, if they did some sort of married filing separately strategy, they might be able to exclude her income.
Justin [00:10:21] And so because they are business owners, they hypothesized, well, maybe we can control who makes how much.’ And they said, ‘Well, maybe the wife sort of does the admin, and the husband is the CEO. But maybe the wife should be making $125k, and the husband should make $25k. And then they should do married filing separately, and he can make income-adjusted payments on the $25,000.
Justin [00:10:41] I told them, “Listen, I’m not an accountant, a forensic accountant for the IRS, but this doesn’t pass the smell test.” So I’m not sure — I’m not sure exactly what that means, but I’m not going to sit here and say that that’s a good idea.
Travis [00:10:52] Justin’s trying to get me to commit tax fraud on a recorded line, you know. I mean, thanks, Justin. But in all seriousness, I think that — I mean, honestly, like, that kind of thing could be legitimate, potentially. I mean, you have to consult with your CPA (Certified Public Accountant). We’ve got to say that. They’re the ones that understand the tax code. They’re the ones that I would go to and turn to it if this is a legitimate thing.
Travis [00:11:10] But the IRS sets very wide latitude for, you know, especially for small business owners that are a couple that are kind of running it together, to figure out what’s fair and reasonable compensation. And if you can make an argument that somebody’s contribution to the business is really substantial and they deserve to get paid X, I think that that’s something that probably has a pretty good chance of flying, to be quite honest, you know, compared to some of the most aggressive strategies that we’ve seen. Like saying you can’t access your spouse’s income when it’s literally on the joint return that you had to sign that, you know, you filed.
Should you use your pay stub or your tax return to recertify income?
Lauryn [00:11:43] Well, along those same lines, I bumped into quite a few people who are interested in using their pay stub to certify their income. So maybe have, like, a six-figure income and want to say, “Oh, I’m only paying myself $40,000 a year.” And their pay stub represents that. And so that’s how they’re using to get a really low student loan payment, even though that total income is on their tax return.
Travis [00:12:06] Yeah, I don’t think that’s OK to just use pay stubs if there’s other income on the return. What do y’all think?
Justin [00:12:13] Well, in addition, my understanding is with the pay stubs, you also have to have a signed affidavit that says, ‘This pay stub, I hereby solemnly swear, is a fair representation of my total earnings.’ Is that right?
How a sudden change in salary could affect your income certification
Rob [00:12:25] If they request it. I had a consult — this was three weeks ago — where they had significant real estate income that was basically half of their total AGI. It would’ve been half of their AGI, based upon the conversation. But they were only providing their pay stubs. And so their tax return — Again, the loan servicer recommended that they do it, and they didn’t require that affidavit letter.
Rob [00:12:45] Other things I’ve seen are that someone gets massive stock compensation. You know, they work on the Pacific Coast for a tech company. They get massive stock compensation that’s not included in their pay stub. So that’s all — You know, I don’t really know. I mean, if the loan servicer is requesting it, it’s hard to know, you know, how to tell — what to tell someone in that instance.
Justin [00:13:06] And the rules aren’t clear.
Rob [00:13:06] Right.
Travis [00:13:06] Well, I would play a little bit of devil’s advocate here. I think the rules are — They’re super clear that you’re supposed to reflect your entire taxable income. So if somebody is getting a pay stub, and the loan servicer, like — The loan servicer is not the arbiter, right. Like, student loan servicer, like, somebody told you to do something on a recorded line at FedLoan, that’s like a $12-an-hour person that’s going to be there for, like, six months. And then they’re going to take a different job making $15 an hour as an associate at Wal-Mart. I don’t want to be mean or anything, but that’s just the reality of what’s going on. The quality of the advice that you’re getting is very, very low.
Travis [00:13:40] So just because somebody says that you could do that doesn’t really mean anything. Like, the loan servicer, you can’t trust them. So the way that the rules are written, you have to tell your loan servicer about all of the taxable income. If they said use your pay stubs, and you gave them tax return information and pay stub information — The only time you can really use pay stubs is if you’re saying that your taxable income is not an accurate reflection of your current income or your taxable income, which you can make a really good argument that the current pay stub is now the accurate reflection of your income.
Travis [00:14:12] Like, for example, those stock options. Maybe you do six months of payments on something like Revised Pay As You Earn, but then you’re like, “Well, that’s already happened. It’s in the past. Now my income is different. So I’m going to recertify, and I’m going to use my pay stubs to recertify.” Like, I could see that being legit. But, you know, you just got to be — You’ve got to be conservative.
Justin [00:14:29] I’ve had a couple where – I’ve got an attorney who works at a salary, and then maybe at the end of the year they get some kind of profit share or performance bonus that’s a big number. So, say they make — $150k is their salary, and then they can have a $70k bonus that they get every December. But it’s a discretionary bonus at the discretion of the employer.
Justin [00:14:48] So if it’s February and I’m recertifying, is this attorney — should they be certifying based on a pay stub, which shows their salary? Or should they incorporate that bonus that’s a discretionary bonus at the will of their employer, that may or may not hit at the end of the year but did hit two months ago?
Travis [00:15:06] Cayman Islands is my answer. Just put it all there. Then nobody sees anything, right. No, just kidding. Just kidding, IRS agents that listen to the podcast.
Justin [00:15:13] So I guess what I’m getting at is this is one of those areas, like, I guess it’s not clear. It’s not explicit, based on the rules. Would you say, Travis? Or Rob or Lauryn?
Rob [00:15:25] I mean, yeah, is it based upon what they have made? Or what they are going to make? So if there’s any uncertainty, it’s sort of like someone who — let’s just say someone has like a seven-figure salary. They just started in the job for a week. Do they really have a million-dollar salary? You know, because they just started making that income. Or do we take their prior income, which is the more accurate reflection of what’s actually happening for student loan recertifying of income purposes? You know, me, I always err on the side of, like, tax return is the most official way to document that. But, you know, there are exceptions, obviously.
Travis [00:15:56] Here’s kind of the way that I look at it. You can be super aggressive changing plans, if you don’t mind messing around with things. So you can always apply for forbearance. And if your loan servicer grants you a forbearance, then you can put off payments for 12 months. And then you can always use your tax returns to certify your income. So let’s say you got that big jump in your income, and you decide, ‘Well, I don’t really want to pay $4,000 a month for 12 months.’ You’re legally allowed to request your forbearance. If the loan servicer grants you one, then you basically put — you capitalize your interest, obviously. But you put off your payments for 12 months. And then you can start repayment 12 months later, potentially using a more attractive tax return.
Travis [00:16:34] Another way you could manage this would be if you’re using consolidation loans, if you already have consolidation loans. You can always sign up for the 30-year consolidation Standard Repayment Plan. So you could switch off of income-driven repayment, like REPAYE, onto something that is, like, a 30-year type plan. And obviously, those payments don’t count towards forgiveness. But what you might have done is avoiding having to pay 10% of what could be a super-high but super-temporary income. So I think that there’s tons of strategies that you can use that are legitimate to avoid making payments on that temporary boost of your income.
Lauryn [00:17:12] I had a case similar to that fairly recently where a young lady had two years of PSLF-qualified payments and needed to get some sort of specific training, at a, like, a 1.5-year program where — at a for-profit organization. So she decided to do the forbearance for the 1.5 years, knowing that she’s going back to PSLF and that she’s definitely committed to taking that route. Because like you said, the income was going to jump up quite a bit over that time period. And it wasn’t going to be PSLF-qualified payment.
Travis [00:17:40] It’s a great strategy. I think that’s super smart. I think you’re supposed to take advantage of all the rules within the law. Right.
Rob [00:17:44] That was it. That saved them a lot of money probably.
Travis [00:17:47] We like talking about legit strategy. So we’re going to transition to that next. Anybody else have anything less they want to say about the shady stuff?
Why researching any financial adviser you plan on working with is critical
Justin [00:17:55] Maybe to just quickly touch on shady companies. I know that’s something we talked a lot about probably already on this podcast. But make sure that you understand, you know, who you’re getting advice from and what their incentives are and what their — the other financial relationships which they may have. And, you know, even a quick Google search. If the first couple of hits on Google come up with, like, scam alert with this company that you’re paying $20 a month to, quote unquote, service your loans or to get some advice from, just make sure that you do a little bit of research. Make sure that you can find some sort of evidence [of] who you’re doing business with over the phone or online is a valid company who’s going to point you in the right direction.
Lauryn [00:18:32] Yeah, that’s a really good point, Justin. And I think it’s important, too, to always look at, like, StudentAid.gov or something that’s an official site before deciding whether something sounds like it’s the right thing or the wrong thing. Because sometimes people are getting information from all over the place. And what I hear frequently is, you know, someone paid $700 or $800 to get their loans consolidated. And that’s something you can do for free on your own. There are instructions on what to do. There’s no service that’s required to consolidate your loans.
Lauryn [00:19:01] And then like you said, from a safety perspective, some people use the word consolidation and refinancing interchangeably, and so they tell you they’re going to help you consolidate your laws. They charge you for that, and they’ve actually refinanced loans, which is not the exact same thing.
Rob [00:19:15] Very good point, Lauryn.
Travis [00:19:16] Yeah, you know, you can go to StudentLoanPlanner.com forward slash reviews — that has a link to some of our reviews. It also has a link to our reviews — We keep most of all of our views on our Facebook page. So if you go to StudentLoanPlanner.com forward slash reviews, and then just click the link to the Facebook page, you can read, like 140 or something reviews that we have for our service.
Travis [00:19:36] I think Rob is the most complimented of the four of us. I don’t know. I think Rob just has like that super soothing voice that just puts people totally at ease. Like, I think Rob could probably convince somebody to do anything with their finances. Like, I don’t know, I always feel like a — I feel like Baptist preacher, you know, where I’m telling them, like, how their finances are so terrible, they have to repent. You know. Rob is just, like, this super relaxing dude. I don’t know. Rob, do you think that’s accurate?
Rob [00:20:00] Well, I think I just put it at the end of every recap email that I send to clients, so there’s more of an opportunity for people to post it. And I just use the template that we all use, and we talk about all these strategies. So, I’m just doing what everyone else is doing. I’m probably just, you know, more often doing that. But I think it’s important, though — I mean, kind of to that point, the plan is one thing, but I think just getting peace of mind and having clarity and showing people how much they’re going to save is really huge. And I try to help people understand that these changes are going to change their lives, and it can help them see the bigger picture aside from just student loans. So, I don’t know, I appreciate you saying that.
Travis [00:20:35] Justin, Lauryn, was I mean?
Justin [00:20:36] Good job, Rob.
Travis [00:20:36] Is that accurate?
Justin [00:20:38] No.
Lauryn [00:20:38] No.
Justin [00:20:38] I mean, that sounds absolutely right, and Rob deserves every accolade that he received.
Lauryn [00:20:45] He does! It’s like you’re lying on the couch getting therapy, like — You’re like, “Oh my goodness, this is — You’re right, that makes so much sense, Rob.” Like, “OK, I’m going to go that immediately.”
Rob [00:20:55] I think my kids would disagree with you all, but —
Travis [00:20:56] For each — For you $200k to $400k borrowers out there, you know, you can sit on the metaphorical counseling couch and get your loans fixed with the Rob Bertman show.
Justin [00:21:05] If you’re at, like, $195k, you should probably just let some more interest accrue so you can jump up into Rob’s category and then do business with Rob.
Travis [00:21:12] Yeah, or maybe, like, you know, if you just put it in forbearance for a couple of decades. Yeah that’s possible. Yeah, you know, it’s interesting. Like, different people have different motivations, right. It’s like, my goal with Student Loan Planner was to bring folks like you on the team that were super qualified. Everybody’s got CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) designation. I think Rob’s got both, you know, just to heap more praise on him.
Travis [00:21:35] You know, I think that that’s really important to me. Like, I didn’t want people doing plans for a team that weren’t, like, the top 1% of folks out there in terms of just how much they care about clients, how smart they are with money in general, how experienced they are. So lucky to have you all on the team.
Travis [00:21:54] I’m lucky that I’ve had a very good grounding, like, that I haven’t gotten too greedy. Knock on wood, right? Because there’s definitely a lot of companies out there that their goal is, like, bam, let’s make 10 million dollars as fast as I can. Move it all to the Cayman Islands, you know, so nobody could come after it. And the student loan thing is going to make me rich. I think that that’s probably 80% to 90% of what drives the student loan consolidation scam stuff. Like, there was a guy that got arrested in the San Francisco airport. Body was stuffed full of, like, cash. And the — Like, right before like they froze all of his assets, I think he transferred out, like, a six-figure sum or something, like, right before they froze everything. And supposedly, according to the stuff I read in the news, this person has accounts in, like, Luxembourg and, like, all over the place. So, I don’t know. But —
Justin [00:22:45] You don’t have an account in Luxembourg?
Travis [00:22:46] I do not. I have visited Liechtenstein, though. Random kind of quote of the day: When I was doing my sabbatical, my early retirement phase after I was a bond trader, I decided that ‘how cool would it be if I walked across an entire country as a bucket list thing?’ So I chose Liechtenstein, which is, like next to Vienna and Switzerland —
Justin [00:23:03] The smallest country in the world.
Travis [00:23:04] Yeah, and it took me — It only took me, like, a couple hours, and then I took the public bus back. And I have to say, like, you think of, like, a public bus. This was like the Mercedes limousine of public buses, dude. Like I got on and, like, I paid. But like I’m sitting on there, and, like, everybody in the bus looks like they’re a multi-millionaire. And I’m just, you know, I look like I’m an American, like, homeless person, you know, sitting on the bus. Man, that was — That was fascinating.
Travis [00:23:29] Apparently, like the — I don’t want to get too detoured — The country of Lichtenstein has billions and billions of dollars, like, hidden away and stashed in, like, artwork and all these secret trusts. I mean, it’s — It’s really interesting if you do you want to be a terrible person and hide away a bunch of money and flee to, like, a Third-World country, you know, you can definitely do that.
Travis [00:23:47] But that’s not what we — That’s not what we do. We’re trying to make you — We’re trying to make you comfortable from a legitimate standpoint.
Can you use last year’s tax returns to certify income?
Travis [00:23:53] So talking about legitimate strategies for student loans. So, what do you all think about using last year’s tax returns to certify income? You know, legit? You got to report the higher income if it’s changed. You know, what are y’all’s thoughts about that?
Rob [00:24:08] I think it’s totally legit. I mean isn’t that — That’s sort of the official way, right, when you recertify your income. If they’re pulling adjusted gross income to calculate what they call discretionary income to calculate to loan payments, the best place to find that is off the prior-year tax return. That’s, like, the most official way. And you’re only required to recertify once a year, if I’m not mistaken.
Justin [00:24:26] That’s right. And, you know, for med students — graduating med students, which is happening, like, right now because we’re recording this in the middle of May. I don’t know when this episode is going to air. This is an optimal time if you can graduate and certify your income right now on an income-driven repayment plan because you can use last year’s tax return, where presumably, unless you’re a real overachiever, you’ve probably earned not that much money last year. If it was less than $18k, then your payments are going to be zero on an income-driven plan. Whereas if you wait until the end of your grace period in November, you won’t have that same ability to say that your income hasn’t changed this year. So there’s this window where you can certify that zero using last year’s income, and it’s something to pounce on, if you can.
Lauryn [00:25:10] I think it’s really important to note that it’s not just the strategy but also what you do with the strategy. So now you have this really low payment. You’re probably, like you said, just getting started because you’ve been a broke college student for a while. So this gives you an opportunity to build that emergency fund. This gives you an opportunity to create some real financial stability.
Lauryn [00:25:27] Understand your bills as you’re going through the changes of moving and getting settled into a new place. So it’s not just the low student loan payment. It’s a great opportunity to start setting yourself up by having that low payment, not having that to deal with in your budget. But getting your budget nailed down so that once it kicks in and it’s ready to go, you’re also ready to go, as it pertains to how that is going to affect you financially.
Travis [00:25:49] Yeah, I don’t want to say that I’ve lost any sleep over this, but I do sometimes wonder, you know — it does ask, “Has your income significantly changed?” And you know, especially when you’re, like, a fellow and you just became an attending, and you’re answering that question after you just became an attending physician or a full-earning dentist or veterinarian or whatever it is — the way I kind of get comfortable with saying no to that question is just, ‘have I earned the full year’s worth of income yet?’. If my income has not significantly changed based off my tax return, then I always feel comfortable saying no and just giving them the tax return.
Travis [00:26:22] You know, if you give them the tax return, the prior year tax return every single time, I find it very, very difficult how you could ever be accused of anything because all you did was use the tax return that you submitted to the IRS — assuming, of course, that that tax return is legitimate.
What the breadwinner and reverse breadwinner loophole is
Travis [00:26:39] So, going into the next question: the breadwinner and the reverse breadwinner loophole. So maybe we should trademark that. I don’t know. Maybe y’all could come up with a better loophole name than that. Like, something, like, way more exciting, right. But maybe tell our listeners what the breadwinner and the reverse breadwinner loophole even is.
Justin [00:26:59] Reverse breadwinner. That’s kind of a funny phrase.
Travis [00:27:00] Yeah, it is. I mean, I don’t know. Like, we need something better, like, you know, like lucky — lucky spouse role or something. I don’t know. Right.
Rob [00:27:08] I’ve been both, so you know I can be the acid test for whether it’s appropriate. Yeah.
Justin [00:27:12] Yeah, I know something about that as well.
Travis [00:27:14] So I did this thing with Christine, right, where she was talking about how, well, she’s the breadwinner. So I decided, well, I’m going to contribute one cent more automatically every month to our joint bank account so that I can claim that I’m the breadwinner.
Rob [00:27:29] You know, that penny — That penny makes a big difference. I’m sure that, you know, I would call you the breadwinner. That penny, you know, there’s a lot you can do with that.
Travis [00:27:36] Hey, a savings rate, right? It’s the most important thing. But so, like, breadwinner loophole: basically, you’re in a community property state. You’re filing taxes separately. You equalize your incomes to pay less than your student loans. Reverse breadwinner is kind of like when you’re the lower-income person and you do that filing separately thing, which helps with the tax penalties. But you’re not actually able to use your tax turns anymore because that’s going to mean higher payments. You have to use pay stubs. So I think that we did an episode — I want to say it was episode number six where we talked about the breadwinner loophole. People are interested in that if you live, like, in a West Coast state. Or Wisconsin, randomly, is the other one that’s community property.
Rob [00:28:15] Or Texas.
Travis [00:28:16] Well, Texas and Louisiana. Right. So it’s basically, like, draw a line from Louisiana directly to Los Angeles. And every state that you hit is a community property state. And then go north. And I think, like, the only one that’s not listed is, like, Oregon, right. So.
Justin [00:28:33] Skip Oregon, and hit Washington and Wisconsin and Nevada.
Travis [00:28:37] Yeah, it’s basically, like, the places that used to be possessions of Mexico. They operated off of Spanish Civil Law, and we decided to keep Spanish Civil Law. We took it over in the Mexican-American War. And then because of a bunch of weird student loan things, now Mexican — the Mexican-American War impacts student loan rules. Wow, that would be a fun blog post, right.
Justin [00:28:57] Gosh, I did not know that.
Travis [00:28:59] “How the Mexican-American War Affects Your Student Loan Repayment.” OK. I think we just lost our entire listenership.
Rob [00:29:07] We’re still on the call, though, so.
Is moving abroad to avoid student loan payments a legit strategy?
Travis [00:29:09] So another one I think that’s legit is moving abroad to pay zero dollars a month. So I listened to this Freakonomics podcast that recently talked about student loans. And they actually said that in 2016, Australia closed this loophole because they gave everyone free tuition, and then you paid it back kind of in higher taxes. But a lot of Australians were leaving and just moving abroad and paying nothing, and they just closed this rule in 2016. But good news for all of our American listeners: this loophole still exists, so you can go to any other country in the world and earn below a hundred thousand dollars of income and pay nothing on your loans. Brain Trust, what do we think of this one?
Justin [00:29:49] I’m a big fan. I mean, so here’s the thing is, you don’t let the tail wag the dog. So you don’t want to say, “Oh my gosh, I owe so much money. I’m going to move to some far-flung place where I don’t know anything or anyone just to try to get out of paying loans.” I mean, that’s — I’m not sure that that’s the best strategy. But I talked to somebody the other day who is living in London, and they were 24. They just graduated. They’re on an income-driven plan. They weren’t PSLF eligible, so they weren’t, you know, moving toward the 10-year forgiveness. But they were moving towards a 20-year — well, it was 25, I guess, for Revised Pay As You Earn. A longer-term forgiveness plan. And they were paying zero. So it’s kind of a little bit of a kick-the-can move, but it can make a lot of sense, especially if you’re kind of living life, you know, in, like, six- to 12-month chunks.
Rob [00:30:32] Yeah, I’ve actually had a few of these consults over the last month. I mean, the first question I ask is, “Well, how much are you making in the States? What would you be making in the States, and how much would you be making abroad?” Because at the end of the day, cost of living, depending on what country you moved to — if you’re living in London, obviously, cost of living is more expensive, but if you’re moving to, like, Costa Rica or something, at the end of the day, you know, if you want to build wealth, you still have to earn enough to support your family. And the tax bomb is still going to be owed, right. That’s not considered earned income. So you still have to, like, save aggressively for the tax bomb, which would be higher if you do that. You won’t have any payments, but the loans are not going away. They’re still going to be there. You don’t want to let the tail wag the dog — just like you said, Jason. But it’s important to see, you know, look at the total income and savings and net worth picture and projections of their financial future along with the student loan payment.
Travis [00:31:18] Yeah. Jason. I think I think you met Justin.
Rob [00:31:21] Oh sorry.
Justin [00:31:21] I was going to let it slide.
Travis [00:31:23] If there’s a Jason listening, that you think you’re really qualified at giving student loan planning, we would love to add you onto the team. I’m just pulling your chain, Rob.
Lauryn [00:31:37] Next hire is going to be another girl. I need some woman firepower back here with me.
Rob [00:31:42] No question. You’re pulling it for a lot of people.
Travis [00:31:44] Yes, that would be wonderful. Hopefully we can keep crushing it with this podcast and get more consults and hire another person in the team. So that would be cool. That might actually happen, in probably, like, six months or so is probably my guess.
What the die-with-your-debt strategy is
Travis [00:31:58] So for the last bit of this are there any other strategies that you think that we have missed? Like, some kind of fun things that people should know about? Just topics that you think are really relevant for our listeners to know?
Lauryn [00:32:09] Well, before we switch to the last strategies, I just wanted to say one last thing about the FEI — FEIE (Foreign Earned Income Exclusion), I guess it is technically, rule. I had a consult a couple weeks ago where a mature woman had managed to not pay her student loans for quite a while — we’re talking something over 20 years — and was just getting ready to try to figure out her plan for the first time and was also living abroad, making around $25k a year or so, well under that $100k, which would result in a zero payment for her.
Lauryn [00:32:43] So after we got to the bottom of everything, we figured out that she would be starting fresh from the very beginning getting on a loan repayment strategy. Because she was getting ready to retire, she already had minimal income and was getting ready to retire, so that she would never get to a point where she’d have a payment. So then you have to worry about the tax bomb.
Lauryn [00:33:03] Well, if she’s 65 now, she’d be 90 after the 25 years passed, which she was pretty sure she wouldn’t be alive. And we know federal loans are forgiven if you pass away. So we talked about strategies for her attempting to save for the tax bomb, but then we also talked about the insolvency rule. And at the time they were getting ready to be forgiven, that being a plausible option for her.
Travis [00:33:26] That is a fascinating point. I’m glad you brought that up. So we call this the die-with-the-debt strategy, and it sounds super depressing. That sounds like, you know, throw yourself off a cliff because you have student loan loans or something that’s, like, not a very smart thing. But that’s actually one of the smartest things you can possibly do if you are in that situation. Because, like, obviously, you know, if you could be in debt or not be in debt — being not in debt, it’s great, but if you are, then go ahead and get a zero dollar payment or super low payment that’s primarily based on your Social Security income where it’s almost nothing.
Travis [00:33:58] And then, you know, if you do make it to 90, hey, you know what? We’ve got some amazing lawyers that are friends of ours that would love to file a disability declaration to get your loans discharged because of disability, if you’re not even able to use the insolvency rule. The good news is you might legitimately not know who you are, and Navient would have a really hard time collecting your loan if you didn’t know — Sorry, this is a really terrible joke. But if you didn’t know who you were, it might be hard to collect, right.
Rob [00:34:28] Or if you get to year 24 and you still have your wits about you, when you know, you’re 89 years old, you can always consolidate again. Wipe away that credit towards a loan repayment and start the 25 years when you’re 89. Why not do that?
Travis [00:34:40] Exactly. Some of you all are financial planners and have a broader focus on clients’ lives. And this is an amazing opportunity, really. If you have student debt and you’re over 50 — We’ve written a lot about this in the blog. The idea is that, you know, you can, if you have tons of debt, you can claim Social Security at 70, instead of the vast majority of people claim at — I think 40% of people claim it at 62. Isn’t that nuts? You know, that, like, 40% of people give themselves a way, way lower benefit for the rest of their lives, and only 2% of people wait until 70? I think. I am not sure if that’s the stat, but I heard that recently.
Travis [00:35:16] That just blows my mind because, like, 70% — 70 years old, if you wait until that point, you get a much higher benefit with Social Security for most of your life. So a lot of people out there could retire in their 60s and spend everything they’ve got, and then do Social Security and live a pretty good life. And then you can’t take care of yourself anymore. Medicaid actually covers nursing home bills for the middle-class in America. That’s how the vast majority people pay for their Medicaid is through the government. So.
Travis [00:35:41] But you know, we’re getting into really kind of weird stuff, right. You know, maybe I’ll just get arrested someday y’all because I say that we save people projected like hundred billion dollars, which I believe that we have. But the problem is the vast majority of that expense has come at the expense of Uncle Sam. So, you know, maybe I need to be careful. Hopefully those IRS agents aren’t listening to the podcast, right.
Rob [00:36:03] Well, but you know what, though, this is kind of the benefit of the business that you built up, is because, I mean, what we’re up to what? Over half a billion dollars of loans advised and over, like, 2,000 consults? So I don’t know anyone who has that kind of experience doing one-on-one consults. I mean. So we’ve seen pretty much everything. We talk regularly too, right — the four of us, so we can compare notes and talk through this stuff. This is sort of like a peek into our, you know, our consultant meeting.
Rob [00:36:27] But, you know, there’s all sorts of stuff that can be done. And people who are feeling like their loan situation is hopeless or that they don’t really know how they’re going to make it through, I mean, chances are between the four of us, we’ve seen a situation that we can actually have a legitimate strategy — a legit loan strategy — that can actually help. Even something as wacky as what we’re talking about — the die-with-the-debt rule. You know, it’s just — Or the reverse breadwinner loophole. I mean, no one else has seen this stuff. So we got a lot of expertise over here. Thanks to you and the team you built.
Travis [00:36:57] Well, thank you so much listeners. And I will say this: If you would rather live with your debt instead of die with your debt, this is an amazing team to work with. So just check out StudentLoanPlanner.com forward slash help to work with any one of these amazing people.
Justin [00:37:12] But mostly Rob.
Travis [00:37:12] Well, yeah, Rob. And then Justin and Lauryn. And then Travis, you know, if you want the third-tier option. Right.
Rob [00:37:19] Well, I think what you guys are forgetting — I know you’re wrapping up — but I think what you guys are forgetting is I’m, like, the senior member. Like, I’m almost 40, and I’ve got three kids. And so I think that’s probably why you guys are seeing all this stuff, and why, you know, I have both the CFB and the CFA — I’m just older. I’m just older than all you guys.
Travis [00:37:36] The fastest growing segment of steel loan borrowers is over 60, so we needed somebody on the team that could relate to them.
Rob [00:37:40] Yeah, I’m that guy.
Travis [00:37:46] So on that note, we’ll cut it. Have an amazing week.