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  1. #1
    Registered User Senior Member
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    112

    Is there ever a good reason to default on your student loan debt?

    I was just having lunch with a friend of mine. She told me they were advised to default on their student loans.

    This seems crazy to me. Am I missing something?


  2. Is there ever a good reason to default on your student loan debt?
  3. #2
    Registered User Semi Pro Member
    Posts
    270
    I think if you default, you will not be eligible for debt forgiveness programs. Sounds like a bad idea. Explore forgiveness first.

  4. #3
    Registered User Enthusiast
    Posts
    53
    I agree. This sounds like bad advice. Why would anyone make the recommendation to purposefully default on student loans?

  5. #4
    Registered User Semi Pro Member
    Posts
    267
    I agree: bad idea. Not only will it make it impossible to get loan forgiveness, the debt cannot be discharged in bankruptcy. The lender will be able to go after your friends - even garnish their wages.

    Not sure why anyone would suggest this idea.

  6. #5
    Registered User Semi Pro Member
    Posts
    282
    I've heard about people advising defaulting on credit cards, but never on student loans. Regardless, it probably is better to go see a bankruptcy attorney before purposefully defaulting on anything.

    This is a advice fail, IMHO.

  7. #6
    Registered User Senior Member
    Posts
    112
    Followed up with my friend. The advisor is a debt settlement company. And they are saying to default on private student loans w/ pretty high interest rates. They say they can then negotiate a settlement.

    Anyone have thoughts on that?

  8. #7
    Registered User Pro Member
    Posts
    554
    Still doesn't make sense to me. Even private loans can't be discharged in bankruptcy. And the lenders will have the ability to garnish wages. So why will they be willing to negotiate?

    If your friends do this, they'll probably end up still owing the debt plus penalties and fees, and see their credit wrecked.

    Sounds like a way to generate a fee and make your friends worse off at the same time.

  9. #8
    I want to echo the negative comments found here.

    I have heard of some debt settlement companies and financial advisors who recommend going into default on private loans. My understanding is that they want to make money by negotiating a settlement.

    And while it is possible to get a settlement on private student debt, it is not likely,

    Even private student loans are nearly impossible to discharge in bankruptcy. And the lenders have very strong leverage to get repaid since they can garnish wages, social security income and tax refunds.

    Where is the incentive for the lender to negotiate?

    In most cases, I think you end up just hurting your credit score, and paying more (the original debt plus fees and default interest).

    Better to talk to the lender about some sort of forbearance or other relief. If that gets you nowhere, you may want to talk to a bankruptcy attorney about discharging some of your other debts (if any).

    But avoid purposefully defaulting on any debts before talking to an attorney.

  10. #9
    Registered User Senior Member
    Posts
    112
    Thanks everyone. I am passing this information on to my friend. Hopefully, she will not do anything foolish. Or at least seek out a second opinion from a different financial advisor.

  11. #10
    Registered User Semi Pro Member
    Posts
    267
    Whatever, choice: best of luck to your friend.

    And maybe you should suggest they sign up and hang out over here.

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