
I Defaulted On My Student Loans (And It Was The Best Decision Of My Life) - snicklepuff
http://thoughtcatalog.com/stephanie-shepard/2014/03/i-defaulted-on-my-student-loans-and-it-was-the-best-decision-of-my-life/
======
stephen_g
Stories like this make me very glad of the system we have in Australia. You
can choose to have your Univertity fees just automatically paid by an interest
free loan from the government (it's like a five minute online form to sign up
for), and then you just pay back 4% of the loan on each tax return if your
salary is over $51,000 (you can choose to make voluntary payments over the
compulsory rate, or if you make less than $51,000 - you even get a 5% bonus if
you pay over $500 - for example, make a $1000 voluntary contribution and they
take off a bonus $50 off the loan).

Pretty good scheme to allow people to be educated (which is generally a net
win for the economy) without being shackled by ever-growing debt from the
start of their working life.

~~~
chadcf
There's a plan here in Oregon to try and work up a viable system to do this.
The idea is called "Pay it Forward" and you would essentially pay a 3% tax for
20 years after you graduate. I'm not entirely sure it will ever come to pass,
but it's not a terrible idea IMO. It may not save money, but it does mean you
get an automatic income based repayment plan, you can never be in default and
you get an automatic deferral when unemployed.

That said, it doesn't really do anything to fix the problem of skyrocketing
education costs which is less than idea...

~~~
spacehome
I don't see how this can make financial sense. 3% for 20 years totals 60% of
one year's salary (or the average salary over your first 20 years in career).
Average salary is $48k, so that's paying back $29k.

... however it's actually even worse than this meager sum:

\- Salary increases over your lifetime, and the highest earning decades are
40s and 50s, so I the average salary over the first two decades is probably
lower than $48k. Maybe this is mitigated by restricting to only people who at
least attempt college?

\- Oregon has a slightly lower-than-average income.

\- People are more likely to sign up for this program the less they think
they'll earn.

\- Once someone has graduated, they are not incentivized quite as strongly to
pursue high salary positions.

\- Some loss due to deaths, defaults, emigration, black market off-the-books
income, etc.

\- Depending on how it's set up, this may cut into the tax revenue to the
state.

\- It doesn't take into account inflation or the time value of money.

I understand the point of the program is a social benefit to the state, but I
think it's useful to examine the reasonableness of the proposition in a market
context. If someone offered you a bond to take the other side of this deal,
how much would you pay for 3% of the first 2 decades of income of a
hypothetical freshman entering college this year? What about a 1/1000 share of
a portfolio of a thousand freshman?

~~~
gamblor956
Average student debt load for college graduates with a BA/BS is approximately
$25,000, so the math works out perfectly.

~~~
spacehome
Debt load isn't the same as the cost of school.

~~~
gamblor956
No, but it's the same as the cost _to the student,_ which is the point of
reforming the student loan system.

~~~
spacehome
No it's not, because you're not counting familial help or jobs on the side or
savings. Also, you didn't address any of my other points. This program sounds
great because they're actually charging less. They'll need to increase the
terms of repayment by at least 50%.

------
Xcelerate
I agree completely with her grandmother:

> Grandmother: “Why did you borrow money you could not repay?”

> Her: “I thought I could repay it until the bailouts happened.”

> Grandmother: “That is no excuse. You need to repay them.”

For some reason, a lot of people my age lack any sense of personal
responsibility. It's not the _author 's_ fault she couldn't repay her loans.
It's everyone else's. Lately I hear more and more people blame all of their
problems on everyone but themselves and it's starting to get really annoying.
My (recent) ex-girlfriend was (is?) failing her history class and blamed it on
the professor for not making the attendance policy more prominent in the
syllabus. It wasn't _her_ fault she was skipping class and getting points
deducted.

You know what the author could have done? Not gone to college. Get a
vocational position and save up until you have enough to go if that's really
what you want. Apply for scholarships. There's plenty of options.

~~~
ars
You missed her point completely.

She IS paying the debt. By defaulting she is stopping the interest from
accruing, but she still pays the principal.

~~~
pdonis
But having interest accrue was part of the original agreement she made. The
fact that she has exploited a loophole in the system to avoid paying that
interest does not make it right. If nobody paid interest on loans, there would
be no loans, and she would not have been able to get one to pay for her
education.

~~~
ars
I think she feels that the agreement was two ways: She would pay interested,
but in return she would get a job.

I'm not entirely convinced on the ethics, but there is something to the
argument.

~~~
rakoo
No one promised her a job (as in, no actual employer told her "I've got that
job here, as soon as you show me your diploma you come and work for us"), but
she did promise to pay the loans.

Ok, it's easy for me (or for any non-US) to look down on her because of the
ridiculous loans that go with US education, but she still is in the wrong to
me.

~~~
fnordfnordfnord
>No one promised her a job (as in, no actual employer told her "I've got that
job here, as soon as you show me your diploma you come and work for us"),

Actually, high schools in the US often hold events where employers and college
recruiters show up and give motivational talks where they do precisely that.
No contracts are ever signed of course, but young minds somehow wind up with
the impression that the way to achieve success in life is to get a college
degree at practically any cost.

People in better circumstances can squeal all they want to about
"responsibility" but, if you are a businessman whose profit is predicated upon
convincing 18 yr-olds to mortgage their lives for a chance at the job-lottery
don't expect a lot of sympathy from me when it all goes south. The failure of
this student-loan scheme shouldn't surprise any one. It is dependent upon
having a supply of well-paying jobs waiting for graduates. If the jobs aren't
there, the students won't get (gainful) employment, and without gainful
employment, what method do you propose that students repay their loans?

------
ZoF
Eh, this article doesn't really make sense....

Basically the author defaulted on their student loan instead of deferring and
makes an argument as to why it was a good decision for them.

The reason I say it doesn't make much sense is that, imo, it really glosses
over just how big a deal defaulting on a loan is. While the author is talking
about themself, a naive individual might get the idea that this is the right
choice for them, when it almost certainly is not.

Trashing your credit and not being able to take out a house/car loan is a
pretty huge deal for most people...

Just keep in mind defaulting on a loan isn't something that you just _do_ and
then _undo_ with no consequences(other than saving on that interest lel)...

That shit stays with you for at least 7 years and if you're trying to get a
loan for anything having defaulted on your only loan ever... Good luck.

~~~
digisign
7 years when you're ~22, who cares?

The point, which was a bit buried, was that by defaulting and having her wages
garnished, resulted in much better progress in paying the debt off ... because
there is no interest, and probably because of inflation as well.

I'm not sure that's accurate, but it's what the piece implies.

~~~
ZoF
Yeah, I grokked the point, and I strongly disagree with the conclusion.

For anyone with a graduate degree that's competent in their field the chances
of going 4+years jobless is pretty low. And I would assert that if you get a
(well-paying)job earlier than 4 years out of college its worth it to not
default on your loans.

Why? By the end of the second year of a salaried job I would be highly
surprised if that shitty credit score hasn't fucked up your life in at least
one major way.

It's really about how much you think you're worth. If you don't think you'll
need a loan in the next 7 years then save yourself some money I guess?? Don't
forget if you get ANY job at all in the meantime, because they can just
garnish your wages if they do.

It seems to be implied that life with bad credit isn't so bad(and it isn't),
but we live in a material world. People want to buy shit, often-times shit
that's more expensive then they can currently afford, it's why loans exist. I
just think anyone acting on this advice without REALLY thinking about it, will
regret it more often than not.

~~~
prewett
I'm not in favor of defaulting on loans. But having bad credit doesn't
necessarily destroy your life. I've never taken out a loan in the past 17
years, yet I've bought several cars (including one new). The only thing I
would need a loan for would be a house, but being single and with property tax
in my area at 2%, I'd rather not.

> Why? By the end of the second year of a salaried job I would be highly
> surprised if that shitty credit score hasn't fucked up your life in at least
> one major way.

She was having trouble getting a job as a waitress, I think she did not see
the scenario of the salaried job you speak of as being relevant to her.

> People want to buy shit, often-times shit that's more expensive then they
> can currently afford, it's why loans exist.

I know it's not popular these days, but one can actually limit oneself to
things you can afford. If you do that, you don't need a loan, and hence, bad
credit is irrelevant. And if you have a habit of buying things you can't
afford, bad credit is in your future...

~~~
ZoF
Completely agree, for the proportion of the population that doesn't take loans
ever this certainly seems to make some sense.

I'm just saying that, imo, for the vast majority of Americans the ability to
get a loan is more important then she implies. Not to mention the fact that
Phone-Carriers/Recruitment-Agencies/Utilities-Vendors check credit scores as
well.

It's effectively coming to terms with the fact that you won't be getting a new
car/home for 7 years unless you can afford to buy it with liquid assets... So,
unless your income is so great that you can save up for a car/house on TOP of
affording rent + food/clothes/etc + student loans, you won't be getting one
until your credit recovers.

You last paragraph is basically my point, limiting oneself is _not_ popular
these days, that's exactly why most American's would regret this decision
because eventually they would find themselves limited. Perhaps they should be.

I feel like I should state down here that:

a.) I hope I never have to borrow money in my life, but I probably will. I
don't think it's the "right" way to live or anything.

b.) I think this does make some sense for certain people.

c.)I don't think bad credit ruins your life, but I do think it has a bigger
impact than was implied.

------
kator
Stupid question, if everyone does this do we expect that these loans will
still be available?

Maybe it was the "best Decision of (YOUR) Life" but every time this happens it
hurts these programs even more.

Congratulations on a perfectly self-centered Millennial decision that was the
best decision of your life that most likely made these programs one step
closer to being discontinued.

I guess I'm old fashioned, I've never signed something I've not read and I
always honor my commitments to the best of my ability and with honor and
respect for everyone involved.

~~~
bradleyjg
The student loan system in the United States has all kinds of negative
effects, including being partly responsible for two decades of out of control
cost growth in higher education. If a high default rates pushes the government
to go back to the drawing board, that's a good thing.

~~~
kator
Don't vote by defaulting, vote by voting. To default on a loan after you
signed it because you have some sort of agenda is not voting, it's just
defaulting on a commitment.

~~~
bradleyjg
I'm not defaulting, nor am I even suggesting anyone else default. I'm
countering your incorrect argument that undermining the US student loan
programs is a negative consequenece of default.

In any event, I don't share your simplistic views about the morality of doing
so. Anglo-American law actually favors breaching contracts when it is
efficient to do so. Also these particular contracts are made in a predatory
fashion, they are contracts of adhesion between the most powerful entity on
the planet (the US government) and naive 18 year olds.

Try to worry a little less about your sacred honor and a little more about
your fellow human beings. That's what's morality should be about.

------
noisy_boy
I'm Indian and sometimes pieces like this are a very strong reminder of how
bad the student loan situation is in US. I went to a central university (i.e.
funded by the central/federal government of India) and basically paid less
than INR 1000 per year in tution fees and what not (I was a day scholar so no
hostel expenses but they were low as well). For three years of full time
university education, that is less than USD 50. I don't have a foreign
university degree to compare quality of education with but I certainly got FAR
better education than I paid for.

~~~
ahomescu1
Public universities are funded by government, which in turn is funded by
taxes. The choice here isn't between "university for a loan" versus
"university for free"; the latter choice is actually "university in exchange
for an extra 3-5% of taxes for the rest of your life" (I'm guessing that
percentage, it might be higher or lower). You have to look at it as "do I want
to pay a loan for the next 10 years" versus "do I want to pay 5% more of my
salary for the rest of my life". There are up- and down-sides to both options.

~~~
xtracto
>"do I want to pay 5% more of my salary for the rest of my life". There are
up- and down-sides to both options.

The main difference is that, if I do not have a job for 3 years, I don't get
drowned on interests.

~~~
ahomescu1
Why would you get drowned in interest? You would have to make regular payments
as usual, which is something you know from the beginning, and are supposed to
plan for.

Also, if this is a problem, you could try to ask for a clause against this
when you sign the loan contract (if you lose your job, you stop having to make
payments until you get a job again). Not sure they'd go for it, but it's worth
asking for (I think many student loans come from the government anyway, they
might accept this clause).

------
marincounty
I totally understand someone who can't pay back the student loans. But please
--try to do it right. Right now student loans are not subject to discharge in
bankruptcy court. Before you ruin your credit: obtain as many credit cards as
possible. It might take a few years to obtain the amount of credit you need.
Then pay off you student loans with their money. Wait awhile--then do your own
bankruptcy. (I have no sympathy for credit card companies. They have a lot in
common with Loan Sharks.) (One other thing--If you pull off this caper,
remember just how terrible you felt when you were in trouble.)

~~~
Pinckney
Some googling suggests that this is fraud, and that the courts will recognize
what you're doing and refuse to discharge such credit card debt.

E.g.: [http://www.nolo.com/legal-encyclopedia/will-bankruptcy-
rid-c...](http://www.nolo.com/legal-encyclopedia/will-bankruptcy-rid-cash-
advance-used-pay-off-student-loan.html)

------
ars
Sounds like she is defaulting, but paying.

The idea of the default is to stop additional interest from being charged.

Then pay down the full debt, wait 7 years and done.

It's not a terrible strategy actually - although it has some serious
drawbacks.

~~~
pdonis
_The idea of the default is to stop additional interest from being charged._

But interest being charged was part of the original agreement she made. The
fact that she was able to exploit a loophole in the system to avoid paying
interest does not make it right.

~~~
waps
Hey you can make the "fiscal obligation" argument here. You don't get to have
your cake and eat it too. Choose :

1) defaulting as a strategy is not okay, but neither is giving out these loans
without social responsability. In other words, she has zero obligation to
respect the agreement she made, she only needs a socially acceptable option
(let's call it the European strategy, the law as it applies to a sovereign
government)

2) She has to follow the agreement, because it's an agreement, and so does the
debtor. In other words, any loophole is perfectly ok, and if it benefits her,
it's not just OK for her to use it, but it's morally good by virtue of being
part of the agreement, and we should compliment her on being smart about her
obligations.

This sort of discussion is the fundamental conflict between the people working
in justice and congress. Laws often are written by morons in congress. They
write stuff like "it is illegal to", or "you can't" or ... Without any
guidance whatsoever about what happens in the alternate case

The problem with that is that that is not how the world works. A violation of
the law is not resolved by God stopping the whole planet, smiting anyone who
needs smiting, fixing any consequences and restarting the whole thing. So
saying that something is illegal is almost completely beside the point, what
you really should say is "if you do X, then Y happens". The world keeps
turning after any and all crimes and we're left with attempting to puzzle
together an incomplete mess and figuring out what would be a "fair" way to
attempt to do what congress expects God to do.

In practice, you obviously can default on a loan, and the legal system does
what the legal system does : "okaaaaayyyy, congress said A can't do X, who
obviously just did do X, so now we do Y to her, because that worked well in
this other case". In this case Y is nothing.

Thanks to the fact that congress can't be bothered to actually specify what
happens if you do violate the law, there are huge holes in what they think the
law is. As the author of the article illustrated, this makes violating the law
a strategy. And please don't think only poor students use it as a strategy.

~~~
pdonis
_giving out these loans without social responsability_

In other words, you think student loans should only be given out by entities
who will guarantee a job to the student after graduation? Then there would be
a lot fewer such loans. That might not necessarily be a bad thing; but I don't
think you can say it's a _requirement_ for giving out such loans.

 _saying that something is illegal is almost completely beside the point_

I didn't say what she did was illegal. I just said it wasn't right.

 _In this case Y is nothing._

No, it isn't. She's suffering a number of consequences, as others in this
thread have pointed out. But those consequences aren't being imposed by the
legal system; they're being imposed by private entities.

 _this makes violating the law a strategy._

I would say it makes exploiting loopholes in the law a strategy. But again, I
wasn't talking about legality; I was talking about whether what she did was
right. You would appear to agree that those are not the same thing.

 _And please don 't think only poor students use it as a strategy._

Where did I say that?

------
ChuckMcM
Would love to know the degree/school.

It really irritates me when someone says they have to get $200,000 in loans
for a worthless degree from a 'big' school. Both the people who advised them
that this was a good plan in the first place, and the people who loaned them
the money.

~~~
ntkachov
Quick LinkedIn search turned her up.

Arkansas Tech University - 09, Judging by her skills on linked in, I would say
Journalism or something in the English department.

The University is $8k-11k depending on in/out of state. So thats a top of 88k.
But from her linked in profile it looks like she's in state so, worst case,
we're looking at $65,000 for the 4 years. So her monthly payments at a
whopping 10% apr (which is the highest I've ever seen student loans go) would
be $860, had she not defaulted. But since she did shes looking at a monthly
payment of $545. I don't know her details but I'm going to say that $860 would
be more than she made after taxes.

So, no big name school here. No loan sharks. And a pretty reasonably priced
university. And I'm sure that everyone expected her to graduate and make at
least $12/hr which would allow her to split rent and still pay her loans (with
some food money). Based off that I would say its pretty reasonable to say she
got shafted by the economy. Finding work as a journalist after the collapse
would be quite hard. But before that it seemed like a genuinely decent field.
Sure, its not comp sci or petrol eng but it was a good way to go.

------
pkulak
You default and they stop adding any money to your debt? That doesn't sound
right. If I tried that I'm sure they'd be adding some 30% late fee every
month.

~~~
amorphid
"Deadbeat" American student loan debtor here. During the economic meltdown, I
defaulted on my private student loans in 2009. The defaulted loans were picked
up by two different debt collectors. One of them, Sunrise Credit Services, is
charging me interest as I pay down the loans. The other debt collector,
Williams and Fudge, charges me no interest.

~~~
robryan
I guess with the no interest company that they make enough given the discount
they purchase them for and the no additional interest helps get more of them
paid back.

~~~
refurb
Bingo!

These collection agencies purchased the loan for a fraction of their value (if
paid according to the terms).

I'm guessing each collection agency has their own strategy for collecting on
the loans. One of them says "we'll end up with more in the end if we don't
charge interest" and the other said "we're owed interest, let's collect it".

I would imagine the first strategy (no interest) has the benefit that the
person making payments can actually watch the debt decrease over time. It
might make them more interested in actually paying the whole thing back.

If a collection agency says "you owe us $100K and next year it'll be $110K"
you might just not bother paying anything since you'll never be able to get
ahead of the interest.

