Why Defaulting on Your Student Loans Shouldn’t Be an Option

by Melanie Lockert · 4 comments


If you have student loans, I’m sure you’ve dreamed of just not paying them back. You imagine what else you could be doing with that money and think how much easier life would be without the relentless payments.

I’ve totally been there. Although I’ve dreamed of not paying back my debt, I know it’s my responsibility, both morally and legally, to do so.

Aside from my thoughts on the price of higher education, signing up for student loans is still something I did myself. I signed on the dotted line and agreed to pay back my debt, which I’m working hard to do.

Recently, an op-ed was published in The New York Times about the author’s experience defaulting on his student loans. He went so far as to practically encourage others to do the same, in the name of student loan reform.

I agree that the system is pretty broken and the whole mess needs to be reformed, but this advice is simply careless. Defaulting on your student loans has serious consequences that affect you the rest of your life.

Here’s why defaulting on your student loans shouldn’t be an option.

Your Credit Score Will Plummet

After not paying back your student loans for 270 days, your loans will enter into default. At that time, your entire loan balance is due immediately. After that, your loans will go into collections, where you may be hit with even more fees.

Because of delinquent payments, your credit score will plummet. Your credit score is an important factor in your financial life that can determine whether you get approved for a mortgage, apartment, car loan or credit card.

In the aforementioned article, the author’s advice is to find somewhere to live before you default and not move. He also recommends marrying someone with good credit. Not the best advice.

Your Wages Can Be Garnished

You are not off the hook just because you stop making payments on your loans. The government is legally entitled to go after you and recoup their wages through a process called wage garnishment. The awkward part? The government goes through your employer to take up to 15 percent of your income to pay back the outstanding loan.

If wage garnishment isn’t bad enough, getting your employer involved in your financial matters is even worse. A few years ago, I remember when a colleague of mine got summoned by HR — and they received a wage garnishment letter, explaining the process. I couldn’t help but empathize with her about how uncomfortable that must have been.

Say Goodbye to Tax Refunds

If you default on your student loans, you can pretty much say goodbye to tax refunds. The government can withhold your federal and state taxes in order to collect funds to repay your outstanding student loan.

Social (In)security

Defaulting on your student loans could lead to getting even your social security wages garnished. A 2005 U.S. Supreme Court case (Lockhart v. U.S.) determined there is no statute of limitations on Social Security offsets to repay student loans. The government can shave off up to 15 percent, provided your remaining monthly benefit doesn’t drop lower than $750. So not even your social security funds are off-limits.

As you can see, there are really no good repercussions that come from defaulting on your student loans. Although the article in The New York Times made defaulting seem like a viable option that you can could live with, it really shouldn’t be considered as an option.

Aside from the aforementioned consequences, you will also be hounded by creditors as part of your daily life.

So, if you are a student loan borrower, work on paying them back the best you can. Look into income-based repayment and forgiveness plans. The key is to stay in touch with your lender and make on-time payments each month.

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  • webbrowan says:

    Defaulting on any loans should never be an option! Whether you’ve heard this advice from a financial consultant or a relative, know that the minute you default, there are a lot of things that will be affected in the long run, least of all which is your credit rating! Always have a plan for repaying your loan!

  • Meow says:

    I read the NYT article when it came out and I couldn’t believe someone would publish such toxic advice. The student loan burden feels huge and heavy when you’re just starting out but as the old saying goes, “How do you eat an elephant? One step at a time.”

  • I didn’t realize social security could be garnished. Wow. Basically – don’t mess with the government. 🙂

    Great informative write-up!

  • Bob Dean says:

    I never dreamed of defaulting on my loans. But as a student in the late 90’s I had hoped the Y2K event would shut down the server for my loan servicer and erase my loans. It didn’t happen of course.

    I graduated from law school with $120K in debt. Since I didn’t get my dream job right away, my loan servicer was happy to provide a forbearance. My loan plus interest swelled to $180K. I was angry. But I was mostly angry at myself for taking out the loans. I never blamed my school or loan providers. They’re in the business of making money off student loans.

    I created a budget and a debt snowball spreadsheet and focused on getting rid of the loans. I finished paying them off this year and will never let it happen again. Compromising personal responsibility to ignore your school loans won’t make your lender unhappy. They will just exercise their rights to collect as the article mentions. And the bankruptcy laws won’t help either. So rather than ruining your life, come up with a plan and get rid of the loans the old fashioned way. You will feel great when they’re gone.

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