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Defaulting on Your Student Loans is Terrible Advice

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A nascent movement encouraging young people to default on their student loans is starting to gain media exposure, and if it gains traction, it could spell doom for thousands of borrowers’ finances.

In a widely circulated opinion piece titled “Why I Defaulted on My Student Loans” that ran in The New York Times, writer Lee Siegel encouraged the millions of young people who collectively owe more than $1 trillion in student loan debt to follow his lead and stop paying them back.

“The Department of Education makes it hard for you, and ugly,” Siegel writes. “But it is possible to survive the life of default. You might want to follow these steps: Get as many credit cards as you can before your credit is ruined. Find a stable housing situation. Pay your rent on time so that you have a good record in that area when you do have to move.”

As many consumer financial experts quickly pointed out—this is truly terrible advice. Here are some facts Siegel failed to mention:

Defaulting would wreck your credit score, meaning you would be paying more for basic services like insurance or loans—if you can even get approved for them in the first place. And with many employers and landlords checking credit histories, a default could prevent you from getting a job or housing;

You can’t escape your student loan debt. Unlike some other types of debts, it’s extremely difficult to get your federal student loans discharged by declaring bankruptcy; and

The government can take your money even if you stop paying. Siegel doesn’t mention that with federal student loans, the government can claim your federal tax income refund and garnish up to 15% of your disposable pay—which as Jordan Weissmann, writing at Slate.com points out, is more than the 10% a borrower would pay by signing up for the Department of Education’s newest income-based repayment plan.

While there are special cases where students could argue their school defrauded them, such as the nearly 200 former students of the now defunct for-profit Corinthian Colleges Inc. who are stuck with worthless degrees and unmanageable debt, defaulting because you borrowed too much is unlikely to be met with any forgiveness from the Department of Education.

If you’re struggling with student loan debt, a better option is researching if you qualify for a better repayment option—or even a debt-forgiveness plan. You can also check with CES Credit Union to see if there’s a way to refinance your student loan debt at a lower rate, depending on the type of loan you have.

Because credit unions are not-for-profit financial cooperatives, they also can help you with a plan for your other finances, so you can carry your student debt a little easier.

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