I read a controversial op-ed piece recently from a writer who made the conscious decision to default on his student loans. The main reason was to pursue a low paying career he was passionate about rather than take a job he loathed to afford paying back borrowed money. His rationale was that if everyone followed suit then universities, lenders, and the government would have to change the policies regarding student loan repayment or make higher education more affordable or even free to all. While he makes some interesting points, I don’t think anyone should choose student loan default, and here’s why.
No One Forces Students To Borrow Money
First of all, humans of sound mind possess something called free will. Obviously in some parts of the world, choices are fewer and further between, but here in the U.S., no one can put a gun to our heads and make us borrow money. This is true of mortgage, credit card, or consumer debt. While people like to go on and on about evil lenders or trickery employed by credit companies, we are not lemmings. Somewhere along the line, personal responsibility has gotten lost. Everyone has the power and obligation to educate ourselves about pros and cons of borrowing money.
I do agree that kids in their late teens often don’t have the financial background to make decisions that will impact their finances for the next 30 years. I do believe colleges and parents should do a better job of showing what a future looks like with a $25K a year job and $100K in loans, but that doesn’t mean everyone should be off the hook for taking loans.
If you can’t afford college and don’t know if you’ll make any money after graduation, then it’s time to look for a cheaper school or work your way through. Even if it takes more than four years to graduate, it’s better to work a crappy job to pay for school than to have to work a crappy job for life to pay back loans.
That being said, if you do borrow up to your eyeballs and have no chance of scoring a good paying job in your field, you better believe I think you should take a job, even one you hate, to pay back debt. It doesn’t have to be forever, and there is certainly no law that says you can’t pursue a passion in addition to a full time job. I just don’t think it’s OK to skip out on responsibilities because of bad choices in the past.
Student Loan Default Never Goes Away
Choosing to default on student loans has life time consequences. The fellow who wrote the article said that lenders were still trying collect 30 years later. Here are a few things to consider before choosing default.
- Student loans can never be discharged, even in bankruptcy except for very rare circumstances.
- Student loan default will ruin your credit score, resulting in higher auto insurance premiums and the inability to borrow money at reasonable rates.
- Landlords might deny your rental application because default makes you a risky tenant.
- The federal government can use wage garnishment without a judgment if you don’t pay back student loans.
What Should You Do If You Can’t Afford Student Loan Payments?
Make sure you are on top of personal finances. If you are still eating out, watching ESPN on Dish Network, and taking annual vacations, there is room to cut spending. First start really tracking your money, either on paper or with a site like Personal Capital or Mint. You might be able to save several hundred dollars a month from tightening your belt.
Find a way to bring in more money. If you’ve cut expenses to the bare bone, it’s time to bring in more income. There are a million ways to make more money. Yes, extra work takes away freedom and can mean less sleep or time with loved ones. It might not be pretty to deliver pizzas or clean someone else’s toilet, but a bit of sacrifice now is worth much more than a lifetime of fighting debt collectors and poor credit.
Talk to your lender. Government loans have many options for repayment, including income based payments and consolidation. While these options will increase the length of the loan and cost more in interest, they are much better than default. Private lenders don’t offer as many options, but some private loans can be put into forbearance or on a graduated repayment plan that increases with your income. The best way to explore options is to call your lender and explain the circumstances, painful as that might be. Ignoring the problem makes things worse over the long term.
I feel for those struggling with college debt, but I don’t think it’s OK to choose to default on student loans. While it’s important to express your opinions about the student loan burden that does exist, the long term consequences of student loan default are too great to endure for making a statement.
If all else fails and you end up defaulting on your student loans your credit score will be affected. As you may know, having a good credit score is extremely important when it comes to qualifying for loans, homes, credit cards and even jobs. If you do find yourself in defaulting on your student loan and your credit score drops then credit repair may be an option. You can either trying repairing your credit on your own or you can use a credit repair service that you see fit.
Would you default on student loans to pursue a low paying job you were passionate about? Whose fault is it that the student loan burden is so high in the U.S.?