I'm an Attorney. Should I Default on My Private Student Loans for Law School?
Posted March 25, 2016
So you're only the second person in the world I'm telling this to because I was embarrassed by my decision to default on my private law school student loans back in 2014, but now I'm thinking I may be a genius.
So I went to law school at large private school in Manhattan. I still live in NYC because I love it here and I won't let any level of debt prevent me from being happy. For the same reasons you've discussed in some of your articles, I decided that I'd default on my two biggest private student loans... $117k total. Combined with federal loans, I graduated law school in 2008 (Think: Worst summer ever to graduate) with around $220k in debt.
So here we are in 2016, I'm 35 years old, and I'm now paying $2000/mo in student loan debt. However, $1000/mo of that is my choice to overpay on the defaulted loans that are now at $80k (from $117k) to try and pay through them.
At this rate, I'll pay them off in less than 6 years, as opposed to the 18+ years it would have taken had I not defaulted. I'm also offered deals to for up to 30% off to wipe them off the books completely and am told I can always counter for something better.
I don't have that kind of money though and I don't want to take a loan from my 401k at this time because I'm living check-to-check in order to maximize my employer 50% match because it's a GREAT one.
At the end of this year, I'll be down to $70k from $117k that I have paid to the debt collector since 2014 - thanks to NO INTEREST. In March, they'll call me again to try and get me to do a large pay-off (I'll have MAYBE $4k in the bank from my bonus, but that's it).
My question is: Can I stop paying them? Do you think they'll sue or do you think they've made enough $$ off of me? Finally, do you think I did the right thing and do you have any additional advice for me?
Thank you so much for the question and trusting me to address it. My answer is based on the assumption these are private student loans and not federal student loans.
Defaulting on a private student loan, as described in Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan is a good option when you are faced with either no chance of making payments or you are willing to roll the dice and deal with the potential of being sued and maybe get a wage garnishment.
For example, yesterday I was in a conversation about someone who owed a private student loan and the lender gave them two repayment options, neither of which they could remotely afford. In that case they were going to wind up defaulting anyway so at least using that strategically is a logical approach to consider.
Your situation sounds a bit different in that you are able to make the payments. So a strategic default for you could lead to a negotiated settlement with favorable repayment terms, especially if you owe Navient. However, there are risks. The biggest risk is that while a creditor might have a current policy of offering a settlement or negotiated repayment plan on a private student loan, they can change their process at any time.
So let's look at the consequences of defaulting: it will hurt your credit, collection fees and penalties can be added, the balance will escalate, you could be sued, you could face a potential wage garnishment.
On the other side of the issue you could find more favorable repayment terms or a better settlement is available.
Many people who default are not sued but when you are the one that is, who cares about the others. What I can tell you is what I have observed in the past. I'm still not good enough to predict the future though. If I was, I'd have won the Powerball already.