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So What DOES Happen If You Decide to Walk Away from Your Student Loans?

Know anyone with student loan obligations they’re struggling to pay?


If so, that’s hardly surprising. There’s a bunch of people – young and old – who are on the hook for tens of thousands…if not hundreds of thousands…of dollars they borrowed to finance their college educations.

Something else that’s not a surprise is that plenty of those folks, in their frustration, are wondering if they shouldn’t just walk away from those bills. After all, what’s the worst that could happen?
Well, here’s some insight, courtesy of CNBC, into just what can happen if someone chooses to renege on their student loan obligations.

Federal Student Loans

While federal student loans offer the best terms to consumers, including lowest rates and greatest flexibility, this is the federal government you’re in business with, which means if you decide to stop making payments, bad things can happen.

If you do miss a payment, you have 270 days to make another and get back on track. If you don’t make another payment within that time frame, the debt will go into default. From there, your wages might be garnished. If the feds try to get to your assets through a private collection agency, which they’re known to use now with considerable frequency, you could be hit with penalties and fees that represent nearly 20 percent of the value of the outstanding loan balance. You might even be sued by the government. According to the Department of Justice, the government sued over 3,300 borrowers during the last two years. CNBC notes that the frequency with which the government sues student loan borrowers in default is expected to go up under the watch of Education Secretary Betsy DeVos.

Private Student Loans

Private lenders are not afforded the same flexibility as the federal government, so if you default on a private student loan, their sole remedy is to sue you. And they sue a lot.

That said, it’s worth noting that National Collegiate, “the largest holder of private student loan debt in the nation,” according to CNBC, has seen its batting average suffer recently when it comings to suing borrowers. It seems the company has, in some cases, sued borrowers without having the paperwork required to establish a claim to the borrowed money. As a result, National Collegiate has lost a bunch of their cases here recently.

Still, rather than banking on the notion your paperwork will have been lost by National Collegiate or any other private student loan creditor, better to avoid getting involved with them at all. Smart students are availing themselves of less conventional methods by which to keep college costs manageable, like knocking out as many credits as possible at the local community college, going to school online, or going part-time while working full-time. The fact is, there are a lot of choices now available to people seeking a four-year degree that are far less financially disruptive than borrowing up to one’s eyeballs. Why not pick one of those?

By Robert G. Yetman, Jr.