I have earned a bachelor’s degree and a master’s degree. I paid for it all through a combination of student loans (100%) in undergrad, and grad assistantships (75% in grad school).
Here’s the catch. As of right now, I owe $86,000 in private student loans. My payments right now are an astronomical $750 a month (on a 40K salary… I just got a decent job). That’s 20% of my income!
HOW do I default on my student debt so as to find relief? What does defaulting on that debt actually look like month-to-month financially for me? Should I consult legal help from my employer (workplace legal help) if they can help? Will they just throw me the, “You should never default…” line or actually be able to help me?
Getting legal advice from an attorney licensed in your state is always a good idea. They will probably inform you about all the consequences of defaulting, like it hurts your credit or you might get sued. Those facts are true.
But what is also true is the mathematical improbability of you being able to make the payments. So your choices are to increase your income, reduce your expenses, a bit of both, attempt to negotiate with the lender, or throw in the towel and go for a different option.
I would suggest you read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan to better understand what the pros and cons are of stopping payment.
But this approach should not be taken lightly or without understanding the process. Defaulting on payments to work out a better deal is a strategic default. It is planned, done intentionally, and for a purpose.
A private student loan strategic default is an option when no other good options exist. It is neither the best option or worst option. It should only be undertaken with an understanding of why you are doing it and what you are trying to achieve.
Strategically defaulting on a debt is not a new strategy. It was very popular during the mortgage meltdown. You can read more about the use of strategic default.
I recommend that you find a knowledgeable professional with experience in this area to guide you through the peaks and valleys of this process. I think Damon Day is an exceptional debt coach in this area. Having a knowledgeable professional by your side who has experience is invaluable. Otherwise you have no idea if what you might run into is true, false, or just a big bluff by the lender.
As the Consumer Financial Protection Bureau said recently, “Financial coaching is customized to meet each person’s goals, and the study found that coaches can help people achieve financial outcomes that are most relevant to their own situation.” I could not agree more.
My recommendation is for you to talk to an independent debt coach like Damon, an attorney, and your lender to see what they can do for you. After that, make the best decision you can based on facts and move forward with purpose.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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