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Should I Default on my Student Loans?

Michael Lux Blog, News, Student Loans 1 Comment

More and more people are making the difficult, and potentially disastrous, decision to default on their student loans.  For some, it is a result of having no other option.  For others, it is a moral stand.  Lately, the Corinthian 15, and the many others who have joined their ranks have generated attention based upon their decision to default.  A recent Op-Ed in the New York Times outlined the reasoning behind one writer’s decision to default.

Surviving life in Default

If you think a student loan default is in your future, the author suggests taking the following steps:

  1. Get as many credit cards as you can before your credit is ruined
  2. Find a stable housing situation
  3. Pay your rent on time so that you have a good record in that area when you do have to move
  4. Live with or marry someone with good credit

The Sherpa Perspective: Tips 2, 3, and 4 are all sound pieces of advice for anyone in any situation.  As for tip number 1, it would seem that the amount of your credit line is more important than the number of credit cards.

What happens if others default?

In a bit of a call to action to readers, and perhaps with rose colored glasses, the author suggested some possible outcomes to mass defaults.

Among the possible outcomes:

  • The US government would get out of the loan-making and the loan-enforcement business
  • Congress may explore a special, universal education tax that would make higher education affordable
  • Attention would shift to colleges and universities and the high tuition they charge

The Sherpa perspective: Though this author clearly has a bit of an agenda, the conclusions drawn here are not necessarily wrong.  Funding higher education has become a major problem in the United States, and a certain point, a growing number of defaults would force some changes.

Is Default a good idea for me?

Defaulting on your student loans is easy.  All you have to do is stop making payments.  Dealing with a default is another story.  The problems go far beyond a bad credit report and dealing with debt collector phone calls.  Wages can be garnished.  You can lose out on your tax return, and you may find yourself on the receiving end of a lawsuit.

There is definitely some bravery in choosing to default on your student loans, but given the many other ways to make your voice heard here in the United States, defaulting on your loans may not be the best way to prove a point.

  • I cannot think of a good time to default! Some might say near the end of life may be a good time, but how do you predict when your life will end? I think it would be far better to replace the loans with better rates which require good credit.