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Why Defaulting on Student Loans is a Bad Idea?

Defaulting on your student loans can hurt you on an individual level but it has some costly financial implications for taxpayers as a whole.

If you read the news, you've no doubt heard of Lee Siegel and his recent defense of student loan default published in The New York Times. Siegel's story was called "Why I Defaulted on My Student Loans." His suggestion that other borrowers follow suit has sparked a frenzy of controversy and backlash, with articles published the very next day calling him a deadbeat and an "unrepentant leech." Not surprisingly, he's got more than a few supporters in his corner. I am not one of them, however, and decided to show you the cost of default and why you shouldn't follow Siegel's advice.

Why defaulting on student loans is a bad idea

As someone who still owes student loans for not one, but two degrees that I've never actually used in a professional capacity, making my monthly payments is a regular reminder of how stupid I was for borrowing the money in the first place. Do I think my poor decision-making justifies stiffing my lender? Not at all. Will I keep paying them? The answer is a grudging yes.

So why do I keep sending out a check every month to pay for an education that's proven to be virtually worthless? For one thing, I'd like to keep my credit intact. At some point, I'd like to buy a home again and I won't be able to do that with a lousy credit score. I'm also not that interested in finding out what kind of collection actions the federal government is capable of.

For another, I know that someone else would have to pick up the tab if I were to default. The lender and the government might take the initial hit but the cost is going to get passed on to other borrowers down the line through tax hikes or higher fees. With my own kids headed off to college in a decade, I'm not too keen on the idea of putting them on the hook for my debt.

Finally, I continue paying the loans each month because I've accepted responsibility for them. I chose to borrow more than I needed to as an undergrad and live on campus when staying at home would have been cheaper. I chose to go to grad school and add another $20,000 grand to my debt total without having a clear idea of what I was going to use my degree for.

It would be easy to blame my debt on the economy or greedy lenders or rising tuition costs, but the bottom line is I made bad choices to begin with. While Siegel's assertion that more people should consider default is tempting, it doesn't jibe with my sense of financial responsibility.

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The cost of student loan default

To put the issue in perspective, we've developed an infographic that breaks down some of the costs of default. We've also included an example of what a deadbeat borrower could stand to save by skipping out on their loans.

Student Loan Default (1)

What kind of stories would you like to see on MyBankTracker? Share your ideas and burning money questions in the comments below. 

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Tuesday, 28 Jul 2015 4:16 PM
<p>Hang on one moment. It's very honorable of you guys to want to pay your loans back and I admire your sense of responsibility. My only question is where is your sense of Patriotism? The 1% are making it hard for student to afford collage, hard for them to get reasonable loans, hard for them to get an education that employers want, Hard for them to get Jobs after collage, and extremely hard to pay back the loans once you have gotten a job flipping burgers. They instruct the banks to add fees all the time! Financial responsibility is great and all, but I think helping Americans beat back the Oligarchy is a greater responsibility. Choose your battles.</p>
Monday, 06 Jul 2015 3:42 PM
<p>I definitely would rather be spending that money on something other than loan payments each month but I'm the one who borrowed so I'm the one who has to be accountable. It's great to hear from someone who's also taking the high road, even when it may mean making financial sacrifices to do so.</p>
Sunday, 05 Jul 2015 11:07 PM
<p>I agree. While I do think that student loan debt is out of control, it think it is worse of a message if people think they can just borrow money without the responsibility of paying it back.</p><p>Eventually, the habit of not paying your dues will come back to haunt you and possibly the people you care about most.</p>
Sunday, 05 Jul 2015 12:23 AM
<p>I've made a similar decision to pay my student loans as well, no matter how long it ends up ultimately taking in order to do so. Thanks for sharing your thoughts, it is always helpful to find others who are in a similar situation but have chosen to take the Financially Responsible route no matter how challenging it might be.</p>

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