A financial counselor swamped with $350,000 of student debt explains why he's banking on loan forgiveness - and shares how he managed to pay $0 in 2019
- Adam Kol, a couples financial counselor, doesn't plan on paying back his $350,000 student loan debt in full.
- Due to his current financial situation, it makes more sense economically for Kol to eschew payments and aim for loan forgiveness instead.
- In 2019, Kol paid nothing back due to his negligible income.
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Adam Kol, a couples financial counselor, has $350,000 worth of student loans.
"All of the debt came from law school; specifically Duke University School of law in Durham, North Carolina - and then an LLM, which is basically a one-year masters in tax law that I got at NYU the year after I finished at Duke," he said on "Beyond the Dollar." "To pay off $250, $300, $350,000 in debt, plus interest, that's going to be a nightmare unless I somehow started making a million bucks a year."
Today, the monthly payments that Kol makes are often not enough to cover the interest on his loans.
"The balance continues to rise and go up and up and up," he said. "The amount of interest alone on $350,000 in debt is - at about 7% a year, just doing the quick math - is like $24,500 of interest a year. So we're talking 2 grand a month just to pay the interest."
He continued: "As someone who's growing a small business right now, that would be a debilitating payment amount to make."
Kol soon realized that paying his loans back in full wasn't a realistic option - and he started to vet other options. The goal was simple: keep his payments as low as possible.
"Along the way, just looked at my options with my debt and said: 'You know what? I think that the economically advisable thing here is to pay as little as I can.'"
Kol's inkling to skimp on his debt payments was confirmed by a student loan specialist and his accountant. Despite a swelling outstanding balance, it actually made more sense for him to pay less and adopt the loan forgiveness route.
Travis Hornsby, the founder and CEO of Student Loan Planner, agrees. He says "a lot of people don't need to pay back their debt," and "You mostly hear the 'pay off your debt at all costs' mentality, and that's really bad advice for a lot of people."
Because of Kol's unconventional chosen path, he'll be in for a large tax bill when all is said and done.
"When the time comes, I'll have a big tax bill that year because the amount that's forgiven will be considered income, so I'll be preparing in the years leading up to that to pay for that bigger tax bill," he said.
How he paid $0 in 2019
Kol is currently on an income-based repayment plan, which means that his loan payments are calculated as a percentage of his discretionary income. The US government currently offers four different "income-driven" programs in order to help individuals with low income tackle their swelling debts.
"When you certify your income, you can have that go for an entire year," he said. "For 2019, I just didn't have a payment due. Formally, you could say I had a payment of zero dollars."
At the time, Kol was in the process of building his business. The costs associated with the venture brought his income down to a negligible amount. As a result, he paid $0 on his loans for a full-year.
"The biggest advice that I can give is just keep taking the next step, even it's a small step," he said. "Just take another step forward towards your vision, towards your dream, towards what it is you're creating and what you want to have."