Defaulting Proliferates as Strategy For Dealing With Student Loan Debt

In response to the financial burden posed by student loan debt, a group of borrowers across the globe are turning to default as a strategy for dealing with the issue in a way that could potentially drive social and political change.

Defaulting Proliferates as Strategy For Dealing With Student Loan Debt 1

The mammoth financial problem of student loan debt has been surfacing during the past couple decades. Faced with unmanageable payments, more than 1 million borrowers default on their student loans annually, and approximately 40 percent are expected to default on their student loans by 2023, according to a recent report by Annie Nova with CNBC.

Other options for dealing with education debt include forbearances and deferments; loan forgiveness; borrowing from other loan sources, such as those found on TopLoanCompanies.com, to make payments; or income-driven repayment. Another option is embracing the inevitability of defaulting with a plan in place for dealing with the aftermath, according to an article by Robert Farrington on Forbes.com.

Individuals who are part of this growing culture and making this choice – sometimes linking it with a larger moral obligation to confront “student loan slavery” or other political and social messages – can be found in various places, including a sub-Reddit called /r/studentloandefaulters.

“While some of them want to send a political message along with their default, at the end of the day they are really working through a challenging financial situation with the best plan they can come up with,” Farrington writes.

Explaining why this growing faction is intentionally going into default on their student loans, Farrington quotes student loan debt attorney Joshua Cohen, who states, “When I say strategic defaulters, it means there is a plan to deal with the debt, not that they actually default when they could afford the payment.” Borrowers will still face potential consequences – such as having wages garnished or no longer being able to receive any Federal student aid – but borrowers also can use this as a way to move toward settlement, at least on private student loans.

Cohen states in Forbes article that payments can help alleviate moral obligation, and for borrowers who can afford a payment “at a reduced rate within a short time, say 12 months or less, this isn’t a bad deal.” Once loans are settled, borrowers can move forward with their financial life and begin to rebuild their credit, Farrington writes.

The articles notes that defaulting on federal loans often does not carry the same benefits, particularly because there are more available programs for dealing with that kind of debt. Borrowers can pursue deferments, forbearances or income-driven repayment loans, some of which are capped at 10 percent or 15 percent of discretionary income.

Melissa Thompson writes about a wide range of topics, revealing interesting things we didn’t know before. She is a freelance USA Today producer, and a Technorati contributor.