In Financial Crisis Over Student Loans? Money Expert Offers Startling Advice!
May 8, 2013

We’re always on the lookout for theories on how to best manage student loan debt so we can make recommendations to our readers that are struggling. This week we came across an interesting piece of financial wisdom from a money expert that we thought we would share. This advice is ONLY for those who are in serious financial hot water and not earning enough to pay all of their debts. This is not a tactic for those who are simply finding their money is tight after they pay all their bills. Read on to see how to rethink debt if you’re overwhelmed and under water…

This advice comes courtesy of Steve Rhode who bills himself as the “Get Out of Debt Guy” and runs a non-profit debt counseling organization. He experienced a business failure and bankruptcy almost 25 years ago and has since devoted himself to help getting others out of debt. He is the author of two bestselling books on iTunes: Eliminate Your Debt Like a Pro and The Path to Happiness and Wealth.

His website,, has lots of interesting advice, but it was Rhode’s “Ultimate Guide to Dealing with Student Loan Debts You Can’t Afford” that caught our eye. There is a roster of advice in this lengthy article but one section in particular was different from conventional wisdom. Rhode writes: “When dealing with student loan debt that is just unaffordable you have to change your mindset about your debt and reorder it.

So what is this mindset change? Rhode recommends paying your student loans before credit card or other unsecured debt. He doesn’t go into detail, but it’s easy enough to extrapolate from there. First, you need a place to live, so pay your mortgage or rent. Second, you need electricity and running water, so pay your utilities. Third, child support and alimony are not optional ever, so pay those. Fourth, your car loan is a secured debt and they will take it away if you don’t pay, so pay your car note.

But after that, the Rhode plan would de-prioritize credit cards, medical bills and personal loans which are all forms of unsecured debt. Rhode bases his drastic recommendation on the fact that unsecured debt can be easily dismissed in bankruptcy if your finances are on the downhill slide, but it is much more challenging (and rare) for student loans to be dismissed in a Chapter 7.

His rationale for this advice is that if you cannot afford your unsecured debt and student loans, student loan creditors will come after you aggressively to pursue this debt. For federal loans, tax refunds can be seized and for public or private loans and up to 15% of your disposable income can be garnished to pay your overdue loans. If garnishment occurs, your financial situation will no doubt worsen.

This is a drastic step to take, but one worth considering if your financial situation is dire. If you have federal loans, applying for Income Based Repayment can drastically lower your loan payments down to as low as $0 depending on your income. The IBR program is always one to consider because it can lower payments and get your loan balance forgiven after 20-25 years of regular payments. Pay as You Earn is another newer plan to help keep student loan payments better aligned to income level.

However, if your income is not low, but your issue is overwhelming debt because you’ve made poor credit choices or suffered a major life change that has left you in over your head, bankruptcy may be your best option and the Rhode plan could work for you. Also, if you have private student loans, IBR and PAYE are not available, but you can still ask your lender if there are lower repayment options for you.

Before opting for this drastic tactic, be sure to weigh all of your financial options. This can be hard to do on your own. Check your local library for information on free financial advice from local community resources. Whatever you do, don’t pay big bucks for financial advice or dodgy debt reorganization programs. This will only make your situation worse!

Also download our free student loan management tool available at You can view all of your student loans in one easy interface, compare repayment plans and contact your lenders to discuss eligibility for different plans.

Also, please check out our other recent blogs on student loans and bankruptcy, repayment plans and how to afford student loan payments when your money is tight:

In a Cash Crunch? Affordable Repayment Plans for Federal Student Loans

Outrageous Tactics of Student Loan Debt Collectors

4 Ways to Pay Off Your Student Loans in Record Time

5 Ways to Reduce or Delay Student Loan Payments

Proposed Bankruptcy Law and Landmark Case Hold Hope for Student Loan Debtors