You’ve probably heard of people using a “strategic default” on their home mortgages in Florida. This means the homeowner stops making payments because the value of the home is less — often substantially less — than the amount remaining on the mortgage. This often makes financial sense; but can it work for something like student loans?
The short answer: no. The obvious point is that student loans are much different than home loans, in that the market for the products (i.e., a home vs. your degree) is much different. Despite this, some people think that ceasing payments on a student loan will prompt the lender (generally the Government) to negotiate a settlement. This is rarely — if ever — a wise choice.
Interest on your loan continues to accrue even if you have stopped paying. After a few years, this interest can amount to thousands of dollars in fees that you might not otherwise have accumulated. Further, even if the government decides to settle with you for a smaller amount, that amount will likely be somewhere around 90% of what you originally owed. Since you’ve accumulated that additional interest, that settlement might not be less at all.
In the meantime, while you’re withholding payments, the Government will be using the laws they’ve created in order to get what’s owed to them. They can garnish your wages up to 15%, take your tax refunds, and even seize any lottery winnings in order to get what’s owed to them. Even declaring bankruptcy will likely not discharge your student loans (in most circumstances).
Now, here’s some good news: it is possible to lower your student loan payments. You can request an income-based repayment or seek debt settlements without going into default. Visit this website to learn more. If you have questions about your student loans or are having trouble paying your bills, contact a “>consumer law attorney today to discuss your options.