You could argue that college isn’t all that hard. What is hard is figuring out how to pay for that education — and later coming up with a strategy to pay off the loans that you took out. In fact, members of the class of 2016 graduated with an average of $37,173 in student loan debt, according to annual calculations made by student loan expert Mark Kantrowitz, who publishes Cappex.com, a site that connects students with colleges and scholarships.
And students can carry that debt for a long time. In fact, a recent report from the federal Consumer Financial Protection Bureau concluded that four times as many seniors (60 and older) carry student debt as they did a decade ago. That number is currently 6.4 percent, which is low, but scary to think about if you’re in that 6.4 percent. On average, if you’re a senior citizen with student loan debt, you owe $23,500.
[See: 8 Financial Steps to Take After Paying Off a Debt.]
Extreme measures can have extreme consequences. Not wanting to be burdened by student debt for decades, it’s no wonder that some consumers take extreme measures to get out of student loan debt. David Levy, based out of Las Vegas and an editor at Edvisors.com, a higher education resource website, says that some of the unusual student debt methods that he and his colleagues have encountered or heard of graduates attempting include the following:
— Using a credit card to pay off student loans, “especially if there is an allure of a zero percent introductory rate,” Levy says.
— Draining emergency funds and savings accounts
— Depleting a kid’s savings account
— Securing a reverse mortgage on a home
— Depleting a 529 account
— Using a student’s sibling’s savings account
— Borrowing against a parent’s IRA
— Donating sperm or eggs on a regular basis to help make student loan payments
Of course, while the aforementioned scenarios may be successful in helping to pay off student loans, they all have their shortcomings. For starters, as Levy points out with the strategy of using one’s credit card to pay off student loans, “Of course, the drawback is the spike in the interest rate after a fixed period of time.”
With emptying out emergency savings, the student debt may be gone, but so is your protection in case you do have an emergency.
And using a 529 account seems like a perfectly reasonable way to pay off student loans, but there can be financial consequences, according to Levy. That is, if you withdraw money from a 529 to pay your student debts, you can be socked with taxes and penalties. (There is a bipartisan bill, however, that’s been introduced in Congress that would make it more cost-effective for consumers to use their 529 to pay down student loans.)
[See: How to Talk to Millennials About Money.]
Sometimes extreme debt-killing strategies don’t appear extreme. Even doing something like using an inheritance to pay off an entire student loan debt can be a risk, says Tom Anderson, CEO and founder of Supernova Companies LLC, a Chicago-based financial technology company that serves financial advisors.
Anderson says that he had a client who received a small inheritance and used the money to pay off his student loan. That sounds like a perfectly reasonable thing to do with an inheritance, and it might have been if things had worked out a little differently.
“A few months later he lost his job,” Anderson says. “To survive, he began using his credit card and racked up $20,000 in credit card debt. So he paid off debt at about 5 percent and was now dealing with debt at 20 percent.”
Obviously, Anderson’s client wasn’t being irresponsible. He sunk an inheritance into a debt. He didn’t buy a giraffe or spend all of the money on a riverboat gambling cruise. But he did end up throwing away what might have been a financial life preserver.
“The takeaway here is value liquidity — don’t be afraid to hold cash,” Anderson says. “If he had put that money into his checking account or savings, he would have been better prepared for the loss of a job, an unexpected event. … There is no substitute for money in the bank.”
In other words, paying off student loans is smart, but paying it all off at one time may leave you vulnerable to other problems — or you may create a different type of future problem if you take an extreme route like draining your retirement fund.
[See: 12 Millennial-Inspired Ways to Spend Less.]
Even seemingly responsible student debt reduction plans, if taken to an extreme, can have negative consequences lurking in the shadows. Jen Smith, an acupuncturist in St. Petersburg, Florida, paid off $53,000 in student loans in 2016, and she did it in a way that sounds very sensible. She and her husband, Travis, an aircraft mechanic, took multiple side jobs with the goal of making as much money as possible — and funneling that extra money into the student loans.
“We did everything from online data entry to stuffing coupons in the newspaper, as long as it didn’t interfere with our full-time jobs we were in,” Smith says.
Among the jobs she worked on, Smith worked at a foster group home and started a personal finance blog called SavingwithSpunk.com. Her husband found a side gig, driving for Uber.
“Needless to say, it was exhausting,” Smith says.
But it was worth it, right? After all, Smith extinguished $53,000 in debt.
Well, not entirely worth it. Stress can weaken the immune system, making people who are at risk for getting the shingles virus even more susceptible to getting it. And working every waking minute of her life, Smith was definitely stressed. She thinks the additional workload led to the virus.
“Shingles was the worst pain I’ve ever felt,” says Smith, who first started feeling pain in December 2015 when she was at one of her part-time gigs.
“I was working at the foster home when the blistering started, and no one could relieve me so I had to watch kids for five hours in excruciating pain before I could get to a doctor,” Smith says.
She is almost back to normal now, and she and her husband did get most of her student loan debt paid off — with $20,000 more to go. But they’re back to working regular hours.
“I still think making extra money is the quickest way to pay off debt, but the way you do it has to be sustainable,” she says. “Approaching my debt payoff like a sprint, instead of a marathon, was a big mistake.”
More from U.S. News
11 Money Moves to Make Before You Turn 40
10 Offbeat Ways to Earn Extra Money
25 Ways to Fix Your Finances Fast
Extreme Measures People Take to Get Out of Student Loan Debt originally appeared on usnews.com
