Defaulting on Student Loans Does Not Add Up

Many readers probably know from experience that student loans = an overwhelming amount of stress.  But, as it turns out, defaulting on student loans = an even more overwhelming amounts of stress.

Forbes recently wrote an article (“Deduct This: The History of Student Loan Interest”) on the history of student loans, which talks about how they have developed from being an altruistic way to help students pay for their education into a profitable business for moneymaking lenders.

Meanwhile, Elie Mystal at Above the Law wrote a piece about what it’s like to live as a student loan defaulter, and he implies that it’s a mixed bag. Not the worst thing in the world, but with definite, albeit manageable drawbacks.  However, Megan McArdle from The Atlantic found Mystal’s advice did not add up and could be so lethal that she needed to respond (“Don’t Count on Settling Those Student Loans”).

McArdle argues that defaulting on your loans never makes sense.  In fact, your credit rating will be so damaged that landlords will treat you “worse than ex-convicts” if you send your debt into default.

The worst of it is that if you default you will owe just as much if not more than you did before you defaulted! According to McArdle, “There are only two ways to erase the debt: prove you’re permanently disabled and will never again earn more than a pittance; or die.” Neither of these options sound too promising.

Bottom line: student loans are stressful and burdensome, but there is no way to run away from them.  The good news is that although defaulting on one’s loan does not add up, investing in one’s education can make mathematical sense—if you invest wisely.

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Last updated on July 8, 2011.