Just Pay it Back: The Risks of Defaulting on Student Loans
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Recently, renowned NYU professor and activist Andrew Ross encouraged students to sign a petition promising to default on their student loans in solidarity against rising student debt. Associated in part with Occupy Wall Street, Ross claimed that if enough students defaulted together, it could meet the protestors’ ostensible demands of across-the-board student debt relief, free education, and other such cosmic improbabilities. If Ross understood for just a second what would actually occur if any graduate forewent their legal contract to repay their loans, maybe he would think twice about encouraging others to destroy their financial futures. For those not in the know, there are quite a few consequences when you default on your student loans. You essentially run the risk of:
1. Losing your federal benefits
Although it is illegal for the government to take away your Supplemental Security Income, once you default on your student loans, it’s possible for Uncle Sam to take away a portion, up to 15% of your social security retirement and disability.
2. Losing your tax refund.
If you default on your student loans, you can kiss your tax refund check goodbye. After six months of non-repayment, which is the standard for considering your loans to be under default, the government can put a hold on your tax refund check until your loans are paid back in full or until you agree on a repayment plan.
3. Taking a cut from your paycheck.
Yes, the government can even start taking money out of your regular paycheck. Called “garnishing,” the Department of Education and the loan guarantee can take a certain amount of your paycheck, which can be up to a little over $200 dollars out of your weekly wages.
4. Having any professional licenses revoked.
If you are in a profession which requires a license, such as any of the various medical or legal professions, you could stand to have your license revoked. This may entail being fired from your job and not being able to practice your profession elsewhere.
5. Trashing your credit score.
This, of course, goes without saying. Although having a poor credit score is not the end of the world, and you can certainly work to raise it again, the going will be very tough. Having a poor credit score can destroy your chances of ever buying a house, securing more funds for education, or making other important purchases later down the line.
6. Being sued by the Department of Education.
You read that right. If you default on your loans, the government will go as far as to sue you to get their money back. The Department of Education can extract funds from back accounts, property, and other assets.
Of course, it’s unlikely that you’ll cavalierly join Ross’s call to default on your student loans. If you are defaulting out of necessity, however, there are different options that you should look into. Communication with your lenders is key, as they can adjust repayment plans to accommodate you. Whatever you do, don’t simply stop repaying without letting anyone know! It will come back to haunt you.
This is a guest post by Mariana Ashley, a freelance writer who particularly enjoys writing about online colleges. She loves receiving reader feedback, which can be directed to mariana.ashley031@gmail.com.
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Comments
Settling all outstanding student loans is the right thing to do. If you do not have the means to repay everything in one go, the least you can do is express your willingness to pay and then negotiate a payment scheme that fits your finances.
@ Samuel, how true, working with your creditors is important with any kind of debt.
I like to keep things simple, no interest, no problem. I believe that's how it should be.
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Let me guess....clearly none of you was a finance or philosophy major, because you haven't a clue about the financial system, have no understanding of logic, and you apparently also missed the ethics seminar. I must have missed the part in the promissory note where the school and the Dept of Ed explained to the student (by chance you?) that he/she signed the note because his family was being held hostage, while a gun was held to his head; much like the method the student employed to matriculate. Oh no, wait... those things were all voluntary choices by the student, who knowingly accepted the debt to pay for the classes he/she also knowingly and voluntarily chose as an investment in the prospect of finding a better paying job. That's why one signs a note, a contract, that spells out the risks and penalties for default. Maybe this would work.... relinquish the sheepskin, remove any educational credentials from your resume, and agree to being ineligible for any jobs requiring that education, and only then, while still unrealistic, begin a dialogue to ask about forgiveness of the student loan. After all, the financial institutions and my tax money that made your loans possible don't enjoy any reimbursement of these funds you seem to believe should simply be forgiven because your employment and/or income plans just didn't work out the way you pictured. The list of risks missed one other: the school may suffer sanctions against its Student Loan program if the % of its alumni's delinquencies rises above a certain %. Yeah, the future of this country is not promising when even its supposedly educated population is clearly ignorant of the risk/reward premise inherent in a successful capitalistic system , while concurrently blinded by a misguided sense of entitlement. Your grandparents or great-grandparents would call you a mooch, a leach, a deadbeat. If you want a scholarship or a grant, then apply for one.
KP, I agree that students must take personal responsibility for their loans. Unfortunately, a college education has become so expensive these days that getting a return on your "investment" is not as easy as it once was.
And sadly, college admissions for some schools has become such a sales proposition that there are plenty of students who buy into the "dream" without any understanding of the reality.
Left with 40k debt I KNOW the feeling!
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