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I Defaulted On My Student Loans (And It Was The Best Decision Of My Life)
- almosnow 13y agoI will hardly have empathy for someone who does not pay whatever debts he/she explicity acquired for his own benefit. Sorry, but your grandma is right. I understand that you probably were young and naive and made a choice that you had to regret later, I also understand the problems that you could've encountered during your carrer, but still a debt is a debt and you have to pay. And, by the way, I'm 27.
- stephen_g 13y agoStories like this make me very glad of the system we have in Australia. You can choose to have your Univertity fees just automatically paid by an interest free loan from the government (it's like a five minute online form to sign up for), and then you just pay back 4% of the loan on each tax return if your salary is over $51,000 (you can choose to make voluntary payments over the compulsory rate, or if you make less than $51,000 - you even get a 5% bonus if you pay over $500 - for example, make a $1000 voluntary contribution and they take off a bonus $50 off the loan). Pretty good scheme to allow people to be educated (which is generally a net win for the economy) without being shackled by ever-growing debt from the start of their working life.
- TrainedMonkey 13y agoCompared to US sure. Compared to some countries that pay you to go to secondary school not so much.
- chadcf 13y agoThere's a plan here in Oregon to try and work up a viable system to do this. The idea is called "Pay it Forward" and you would essentially pay a 3% tax for 20 years after you graduate. I'm not entirely sure it will ever come to pass, but it's not a terrible idea IMO. It may not save money, but it does mean you get an automatic income based repayment plan, you can never be in default and you get an automatic deferral when unemployed. That said, it doesn't really do anything to fix the problem of skyrocketing education costs which is less than idea...
- spacehome 13y agoI don't see how this can make financial sense. 3% for 20 years totals 60% of one year's salary (or the average salary over your first 20 years in career). Average salary is $48k, so that's paying back $29k. ... however it's actually even worse than this meager sum: - Salary increases over your lifetime, and the highest earning decades are 40s and 50s, so I the average salary over the first two decades is probably lower than $48k. Maybe this is mitigated by restricting to only people who at least attempt college? - Oregon has a slightly lower-than-average income. - People are more likely to sign up for this program the less they think they'll earn. - Once someone has graduated, they are not incentivized quite as strongly to pursue high salary positions. - Some loss due to deaths, defaults, emigration, black market off-the-books income, etc. - Depending on how it's set up, this may cut into the tax revenue to the state. - It doesn't take into account inflation or the time value of money. I understand the point of the program is a social benefit to the state, but I think it's useful to examine the reasonableness of the proposition in a market context. If someone offered you a bond to take the other side of this deal, how much would you pay for 3% of the first 2 decades of income of a hypothetical freshman entering college this year? What about a 1/1000 share of a portfolio of a thousand freshman?
- gamblor956 13y agoAverage student debt load for college graduates with a BA/BS is approximately $25,000, so the math works out perfectly.
- spacehome 13y agoDebt load isn't the same as the cost of school.
- gamblor956 13y agoNo, but it's the same as the cost to the student, which is the point of reforming the student loan system.
- xtracto 13y agoOr the system we have in Mexico: You can choose between several very good public University (costing around $200 USD per year) or some really expensive $8,000 per semester. Both of them will teach you exactly the same, but enrolling in the expensive ones will give you "social status".
- pkulak 13y agoYou default and they stop adding any money to your debt? That doesn't sound right. If I tried that I'm sure they'd be adding some 30% late fee every month.
- ZoF 13y agoAre you from the USA? This is basically a form of strategic default. Because the debtor hasn't renegotiated their loan(deferred) and has stopped paying for their loan, they defaulted(breached contract, failed to meet obligations, w/e). Because there's no contract, they don't charge interest, but they do hit your credit score and go after the money other ways. In the USA your credit score determines your eligibility for future lines of credit, loans, etc.... In addition defaulting on a loan allows the debtor to garnish wages, tax refunds, etc... It is EXTREMELY RARE that a situation would arise in which the cost of interest on your loan would exceed the cost of a defaulted loan on your credit report.
- amorphid 13y ago"Deadbeat" American student loan debtor here. During the economic meltdown, I defaulted on my private student loans in 2009. The defaulted loans were picked up by two different debt collectors. One of them, Sunrise Credit Services, is charging me interest as I pay down the loans. The other debt collector, Williams and Fudge, charges me no interest.
- ZoF 13y agoEh, this article doesn't really make sense.... Basically the author defaulted on their student loan instead of deferring and makes an argument as to why it was a good decision for them. The reason I say it doesn't make much sense is that, imo, it really glosses over just how big a deal defaulting on a loan is. While the author is talking about themself, a naive individual might get the idea that this is the right choice for them, when it almost certainly is not. Trashing your credit and not being able to take out a house/car loan is a pretty huge deal for most people... Just keep in mind defaulting on a loan isn't something that you just _do_ and then _undo_ with no consequences(other than saving on that interest lel)... That shit stays with you for at least 7 years and if you're trying to get a loan for anything having defaulted on your only loan ever... Good luck.
- Aqueous 13y agoI mean if you can weather the storm of bad credit and have a decent shot at digging yourself out of it in the future, being able to pay no interest on that debt is a huge benefit as usual it is all about the cost-benefit analysis. the author maybe should have put that disclaimer at the end there.
- digisign 13y ago7 years when you're ~22, who cares? The point, which was a bit buried, was that by defaulting and having her wages garnished, resulted in much better progress in paying the debt off ... because there is no interest, and probably because of inflation as well. I'm not sure that's accurate, but it's what the piece implies.
- ZoF 13y agoYeah, I grokked the point, and I strongly disagree with the conclusion. For anyone with a graduate degree that's competent in their field the chances of going 4+years jobless is pretty low. And I would assert that if you get a (well-paying)job earlier than 4 years out of college its worth it to not default on your loans. Why? By the end of the second year of a salaried job I would be highly surprised if that shitty credit score hasn't fucked up your life in at least one major way. It's really about how much you think you're worth. If you don't think you'll need a loan in the next 7 years then save yourself some money I guess?? Don't forget if you get ANY job at all in the meantime, because they can just garnish your wages if they do. It seems to be implied that life with bad credit isn't so bad(and it isn't), but we live in a material world. People want to buy shit, often-times shit that's more expensive then they can currently afford, it's why loans exist. I just think anyone acting on this advice without REALLY thinking about it, will regret it more often than not.
- noisy_boy 13y agoI'm Indian and sometimes pieces like this are a very strong reminder of how bad the student loan situation is in US. I went to a central university (i.e. funded by the central/federal government of India) and basically paid less than INR 1000 per year in tution fees and what not (I was a day scholar so no hostel expenses but they were low as well). For three years of full time university education, that is less than USD 50. I don't have a foreign university degree to compare quality of education with but I certainly got FAR better education than I paid for.
- ahomescu1 13y agoPublic universities are funded by government, which in turn is funded by taxes. The choice here isn't between "university for a loan" versus "university for free"; the latter choice is actually "university in exchange for an extra 3-5% of taxes for the rest of your life" (I'm guessing that percentage, it might be higher or lower). You have to look at it as "do I want to pay a loan for the next 10 years" versus "do I want to pay 5% more of my salary for the rest of my life". There are up- and down-sides to both options.
- xtracto 13y ago>"do I want to pay 5% more of my salary for the rest of my life". There are up- and down-sides to both options. The main difference is that, if I do not have a job for 3 years, I don't get drowned on interests.
- ahomescu1 13y agoWhy would you get drowned in interest? You would have to make regular payments as usual, which is something you know from the beginning, and are supposed to plan for. Also, if this is a problem, you could try to ask for a clause against this when you sign the loan contract (if you lose your job, you stop having to make payments until you get a job again). Not sure they'd go for it, but it's worth asking for (I think many student loans come from the government anyway, they might accept this clause).
- Xcelerate 13y agoI agree completely with her grandmother: > Grandmother: “Why did you borrow money you could not repay?” > Her: “I thought I could repay it until the bailouts happened.” > Grandmother: “That is no excuse. You need to repay them.” For some reason, a lot of people my age lack any sense of personal responsibility. It's not the author's fault she couldn't repay her loans. It's everyone else's. Lately I hear more and more people blame all of their problems on everyone but themselves and it's starting to get really annoying. My (recent) ex-girlfriend was (is?) failing her history class and blamed it on the professor for not making the attendance policy more prominent in the syllabus. It wasn't her fault she was skipping class and getting points deducted. You know what the author could have done? Not gone to college. Get a vocational position and save up until you have enough to go if that's really what you want. Apply for scholarships. There's plenty of options.
- ars 13y agoYou missed her point completely. She IS paying the debt. By defaulting she is stopping the interest from accruing, but she still pays the principal.
- Xcelerate 13y agoOh, I realize she is paying it. It's just that she shifted the blame of the problem.
- tlrobinson 13y agoYou missed Xcelerate's point. They're complaining about her attitude. Of course she's paying off her loans, she has to. Student loans typically can't even be wiped away by bankruptcy. If she could I'm quite sure she would.
- pdonis 13y agoBut having interest accrue was part of the original agreement she made. The fact that she has exploited a loophole in the system to avoid paying that interest does not make it right. If nobody paid interest on loans, there would be no loans, and she would not have been able to get one to pay for her education.
- ars 13y agoSounds like she is defaulting, but paying. The idea of the default is to stop additional interest from being charged. Then pay down the full debt, wait 7 years and done. It's not a terrible strategy actually - although it has some serious drawbacks.
- pdonis 13y agoThe idea of the default is to stop additional interest from being charged. But interest being charged was part of the original agreement she made. The fact that she was able to exploit a loophole in the system to avoid paying interest does not make it right.
- ZoF 13y agoIt's not necessarily a loophole given that her credit score is dinged. It's like fouling in soccer, she broke the rules got a yellow card, was it worth it?
- waps 13y agoHey you can make the "fiscal obligation" argument here. You don't get to have your cake and eat it too. Choose : 1) defaulting as a strategy is not okay, but neither is giving out these loans without social responsability. In other words, she has zero obligation to respect the agreement she made, she only needs a socially acceptable option (let's call it the European strategy, the law as it applies to a sovereign government) 2) She has to follow the agreement, because it's an agreement, and so does the debtor. In other words, any loophole is perfectly ok, and if it benefits her, it's not just OK for her to use it, but it's morally good by virtue of being part of the agreement, and we should compliment her on being smart about her obligations. This sort of discussion is the fundamental conflict between the people working in justice and congress. Laws often are written by morons in congress. They write stuff like "it is illegal to", or "you can't" or ... Without any guidance whatsoever about what happens in the alternate case The problem with that is that that is not how the world works. A violation of the law is not resolved by God stopping the whole planet, smiting anyone who needs smiting, fixing any consequences and restarting the whole thing. So saying that something is illegal is almost completely beside the point, what you really should say is "if you do X, then Y happens". The world keeps turning after any and all crimes and we're left with attempting to puzzle together an incomplete mess and figuring out what would be a "fair" way to attempt to do what congress expects God to do. In practice, you obviously can default on a loan, and the legal system does what the legal system does : "okaaaaayyyy, congress said A can't do X, who obviously just did do X, so now we do Y to her, because that worked well in this other case". In this case Y is nothing. Thanks to the fact that congress can't be bothered to actually specify what happens if you do violate the law, there are huge holes in what they think the law is. As the author of the article illustrated, this makes violating the law a strategy. And please don't think only poor students use it as a strategy.
- kator 13y agoStupid question, if everyone does this do we expect that these loans will still be available? Maybe it was the "best Decision of (YOUR) Life" but every time this happens it hurts these programs even more. Congratulations on a perfectly self-centered Millennial decision that was the best decision of your life that most likely made these programs one step closer to being discontinued. I guess I'm old fashioned, I've never signed something I've not read and I always honor my commitments to the best of my ability and with honor and respect for everyone involved.
- bradleyjg 13y agoThe student loan system in the United States has all kinds of negative effects, including being partly responsible for two decades of out of control cost growth in higher education. If a high default rates pushes the government to go back to the drawing board, that's a good thing.
- kator 13y agoDon't vote by defaulting, vote by voting. To default on a loan after you signed it because you have some sort of agenda is not voting, it's just defaulting on a commitment.
- bradleyjg 13y agoI'm not defaulting, nor am I even suggesting anyone else default. I'm countering your incorrect argument that undermining the US student loan programs is a negative consequenece of default. In any event, I don't share your simplistic views about the morality of doing so. Anglo-American law actually favors breaching contracts when it is efficient to do so. Also these particular contracts are made in a predatory fashion, they are contracts of adhesion between the most powerful entity on the planet (the US government) and naive 18 year olds. Try to worry a little less about your sacred honor and a little more about your fellow human beings. That's what's morality should be about.
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- marincounty 13y agoI totally understand someone who can't pay back the student loans. But please--try to do it right. Right now student loans are not subject to discharge in bankruptcy court. Before you ruin your credit: obtain as many credit cards as possible. It might take a few years to obtain the amount of credit you need. Then pay off you student loans with their money. Wait awhile--then do your own bankruptcy. (I have no sympathy for credit card companies. They have a lot in common with Loan Sharks.) (One other thing--If you pull off this caper, remember just how terrible you felt when you were in trouble.)
- Pinckney 13y agoSome googling suggests that this is fraud, and that the courts will recognize what you're doing and refuse to discharge such credit card debt. E.g.: http://www.nolo.com/legal-encyclopedia/will-bankruptcy-rid-cash-advance-used-pay-off-student-loan.html http://www.nolo.com/legal-encyclopedia/will-bankruptcy-rid-c...
- ChuckMcM 13y agoWould love to know the degree/school. It really irritates me when someone says they have to get $200,000 in loans for a worthless degree from a 'big' school. Both the people who advised them that this was a good plan in the first place, and the people who loaned them the money.
- ntkachov 13y agoQuick LinkedIn search turned her up. Arkansas Tech University - 09, Judging by her skills on linked in, I would say Journalism or something in the English department. The University is $8k-11k depending on in/out of state. So thats a top of 88k. But from her linked in profile it looks like she's in state so, worst case, we're looking at $65,000 for the 4 years. So her monthly payments at a whopping 10% apr (which is the highest I've ever seen student loans go) would be $860, had she not defaulted. But since she did shes looking at a monthly payment of $545. I don't know her details but I'm going to say that $860 would be more than she made after taxes. So, no big name school here. No loan sharks. And a pretty reasonably priced university. And I'm sure that everyone expected her to graduate and make at least $12/hr which would allow her to split rent and still pay her loans (with some food money). Based off that I would say its pretty reasonable to say she got shafted by the economy. Finding work as a journalist after the collapse would be quite hard. But before that it seemed like a genuinely decent field. Sure, its not comp sci or petrol eng but it was a good way to go.