Deciding whether to default on student loans is not like deciding what kind of cereal to buy at the grocery store — choosing to default on student loans has severe and lasting consequences.
The decision to stop paying student loans makes a financially mainstream life nearly impossible. Privileges like qualifying for a house mortgage or receiving a tax refund will be, simply put, improbable.
However, a time may arise when bills are tight, life is tough and defaulting on expensive student loans may seem like a viable option.
Freelance journalist Lee Siegel went through something similar. In fact, exactly similar. He not only defaulted on his student loans, but he wrote an opinion piece about it in the New York Times. Siegel vented about the difficulty of affording students loans, saying:
“It struck me as absurd that one could amass crippling debt as a result, not of drug addiction or reckless borrowing and spending, but of going to college.”
He elaborated further on his misfortune saying that his lower-middle-class origins should not dictate the path his life could otherwise take. Siegel explained that he was not the type of person to take a job that rendered him useless to society just to cover his debt:
“I chose life. That is to say, I defaulted on my student loans.”
Although Siegel is writing from firsthand experience, he’s still advising college graduates to ignore the loan agreements they entered into with the government when they began their collegiate careers. While he should be given credit for his courage in making a strong statement against the government, he won’t be held accountable for the negative repercussions that materialize for others who take his action as inspiration.
According to Jarvis, it takes about 9 months, or 270 days, without payment before the government defaults an account. The government records the account and then, usually, sends it to a third party collection agent. If the government feels like they can obtain other personal assets, they can sue, but normally, they are capable of securing payments in different ways.
That’s the problem with defaulting on student loans. The government has extraordinary collection powers. They are not like banks, who can only go so far to obtain debt. The government can garnish up to 15% of disposable wages without a court order. They can seize tax refunds and intercept government benefits like Social Security. The government is relentless, and they will pursue until the grave.
Challenging the government by defaulting on student loans is absolutely a possibility, but it is by no means an easy task.
An individual should consider every option before choosing to default on student loans. The most realistic way to handle student loans is to get an income-based-repayment plan from the Department of Education to couple with a loan forgiveness program.
The bottom line: Defaulting on student loans should be the last available option, if it’s ever even an option at all.