Why I Defaulted on My Student Loans
July 28, 2015 | Your Finances
A college degree is often billed as the golden ticket to a better career and a bigger salary.
But at what price?
We’ll let the facts speak for themselves: According to college resource site Edvisors, the average grad carries $35,051 in student loan debt. And as a nation, over 40 million borrowers owe more than $1.2 trillion.
But while there’s been plenty of coverage of the student loan crisis, there’s surprisingly little talk about what actually happens to the nearly 8 million people who end up defaulting on their student loans.
So we did some investigating and encouraged three grads to share their stories—and the honest truth—about what goes down when you’re facing the D-word.
“I had 16 loans—and then graduated into a recession.”
Andrew Josuweit, 28, C.E.O. of Student Loan Hero, Austin, Tex.
“I chose a school out of my price range that cost about $44,000 annually, but Bentley practically guaranteed me a sizable income after graduation.
So I applied for federal financial aid, signed up for a work-study program, became an RA, landed a 20-hour-per-week gig as a caterer (free food!), and studied abroad in Vienna because it was cheaper than staying on campus.
Despite all of this, I still had to take out private loans through Sallie Mae. My parents thought I was crazy, but agreed to cosign, which lowered my interest rate a bit.
The Road to Default … When I graduated in 2009, I had $74,000 of college debt—and it was the recession, so I couldn’t find work.
I took an unpaid internship, and waited tables on Martha’s Vineyard until I was laid off for the low season. So I went on unemployment, and moved back with my parents.
Still unable to find a job, I decided to start a web development company, making just $12,000 that first year. I tried to pay my $850 monthly student loan bill, but it was impossible and I ultimately had to put my federal loans into deferment for three years.
But I couldn’t defer my private loans—I had to pay the $400 monthly interest.
So I moved to Southeast Asia in 2011, where I could get by on less than $1,000 a month. Luckily, my company started to turn a profit, earning me $36,000 in 2012.
Then my deferral expired.
I couldn’t even cover the interest, so my loan balances kept increasing. And then I started getting calls from a collection agency, claiming I’d defaulted on two loans.
I had 16 student loans from three servicers, and I eventually figured out that I’d forgotten to give one of them my new number and email. After 270 days of nonpayment, your loans go into default and the servicer transfers your information to a collection agency.
The two delinquent $16,000 loans were slapped with an 18.5% fee. My credit score plummeted to the low 300s. I was rejected for credit cards. And I later had trouble getting approved for an apartment when my girlfriend and I moved in together.
My relationship with my parents also suffered. Even though I didn’t default on the loans they had cosigned, their credit score still took a hit because I made a few late payments on the ones they had—and that put their business at risk.
My Post-Default Plan … I signed up for an income-based repayment plan for my federal loans, which uses a sliding scale to determine how much you can pay. In September 2013 I enrolled in a rehabilitation program that would erase the default from my credit history if I made nine consecutive monthly payments.
Thankfully, my business was really taking off, and I made $68,000 in 2014. In addition to this, I moved from New York City to Austin, where the cost of living is 35% cheaper—and I can save $10,000 a year in income since there’s no state income tax.
I’ve also been prioritizing paying off my highest-interest-rate loans first, as well as loans with the smallest principle balance.
As a result, I’m down to six loans, some of which I refinanced, which lowered my interest rate by 1.5%. I also opened a secure card—essentially a debit card where you draw from an initial down payment—which helped boost my credit score to 660.
Even though it’s been rough, defaulting ultimately made me financially savvier. I’ll know better than to take on a jumbo mortgage that I can’t afford. I got an early taste of what debt is like—and I hated it.”
“When life happened, I pretended my student loans didn’t exist.”
Kristin Bastian, 29, financial education manager, North Charleston, S.C.
“When I was wait-listed at my first choice college, I enrolled in a tech school. I qualified for a Pell grant and received state lottery assistance, so I only spent $250-$300 per semester.
When I transferred to the College of Charleston in 2005, I assumed I’d be granted a full scholarship, thanks to my strong GPA and SAT scores. But after meeting with the financial aid office, I was floored to learn I was fully responsible for my tuition.
My mom took out a loan for me the first year, which she defaulted on. The following year I was offered a $10,000 federal loan—even though my tuition was only $4,000 a semester, and I lived at home and didn’t participate in the meal plan.
The financial aid department assured me that I wouldn’t have to pay it back for a long time, so I figured it couldn’t hurt to have extra cash.
The Road to Default … When I graduated in 2009, I owed $26,500 and my monthly payments were $200. The job market was dismal, so I waited tables.
I’d had a baby in 2008, and my partner had lost his job. We were just squeaking by, so my student loans dropped to the bottom of the priority list.
Part of me knew I should try to get a deferment or forbearance, but I felt like I was already so far behind that it was pointless—and I didn’t want to make an embarrassing phone call.
Instead, I pretended my student loans didn’t exist.
In 2010 I landed a temp job for a nonprofit personal finance and housing counseling service. I moved up quickly and was hired full-time—ironically, as a money management counselor—with a salary of $28,000.
Even so, I was barely making ends meet—and kept ignoring my loans. I had just separated from my son’s father, so I was a single mother.
My wake-up call? When my HR manager had to tell me that a collection agency was threatening to garnish my wages and withhold tax refunds.
I was forced to sort things out—and it wasn’t pretty.
My credit score was in ruins (435), and with penalties and accrued interest, I owed significantly more than $26,500 on my student loans.
My Post-Default Plan … I entered a debt rehabilitation program, which had me making nine consecutive monthly payments of $245.
It was a real struggle. I was living on ramen, and had to go to a payday lender to cover my son’s day care.
I accumulated $500 in interest, but once I completed the program, the penalty fees were removed, my loans reverted to a current status, and the default was erased from my credit report.
To keep my good standing, I applied for an income-based repayment plan, which lowered my monthly payments to $20.98. I remember the exact amount because I was so relieved!
My credit score is now at 650, and I’ve been able to open a credit card. I pay $230 a month toward my loans, which I can afford, because I earn more and I’m married.
When I first landed in debt, I was so naive. I’ll never again brush things under the rug, because I’ve seen that it will come back to bite me much worse than if I’d faced the situation head-on.”
“A heart attack derailed my loan payment plans.”
John V., 43, magazine editor, N.J.
“During my sophomore year at Fairleigh Dickinson, my father died of cancer—and I was left to pay for my education, which was about $30,000 a year.
I took out a federal loan and two private loans through Sallie Mae. I also got jobs as a tutor and a gas station attendant, arranging my schedule so that I went to classes two days a week and worked the other five.
It was exhausting and a lot of pressure, but I graduated on time in 1994—with roughly $60,000 in student loan debt.
The Road to Default … My first job was at a newspaper, making $18,000. It wasn’t much, but I still paid my loans on time. Then, in 2000, my wife was diagnosed with MS, and her employer effectively invented a reason to fire her.
Our joint income was slashed in half, and we no longer had health insurance. We had to rely on credit cards for food and her $1,200 monthly medicine tab.
To keep us afloat, I took part-time jobs as a carpenter and freelance writer. I’d pay one credit card one month and another the next, and if I got a bunch of assignments at once, I’d send a big check to Sallie Mae.
Eventually, I got a better-paying job as a magazine editor, and I was able to catch up on my bills and student loans.
But the ground fell out beneath me in 2008, when I had a massive heart attack. I couldn’t believe it. I was only 37 and ran 10 miles a day.
I didn’t have health insurance, and left the hospital owing $23,000. The doctors said I couldn’t do any work for the first three months, so my company replaced me. The housing bubble had just burst, and the bank foreclosed on our house.
Sallie Mae told me there was nothing it could do, so the loans sat there, accruing more interest. I was so dejected I didn’t bother looking into my federal loans.
In 2009 I defaulted, owing $30,000. Sallie Mae offered to settle, which would have saved me 30%, but you can’t get blood from a stone.
My Post-Default Plan … I got part-time gigs in 2010 and was finally hired full-time in 2012, which is when I started making loan payments again.
Earlier this year I worked with a certified credit counselor to finally clean up my finances: I had $33,000 in student loans, $30,000 in credit card debt, plus those hospital bills.
He contacted my creditors, filed cease and desist orders on my behalf, and began negotiations. Whenever he received a settlement offer, he ran it by me and offered his opinion about whether we could get it lower.
He got my $23,000 Sallie Mae loans down to $6,000. My $11,000 federal loan is nonnegotiable, but I entered a consolidation program, so my payments are $77 a month—and I’m hoping to repay it even faster.
Throughout my predicament, I was proactive in trying to manage my finances responsibly. I wasn’t hiding from the debt, and I sought assistance. But I’ve learned you can’t control everything in life.
It doesn’t matter if you earn straight A’s—everyone gets dealt a bad hand now and then. You have to put your head down, keep pushing through, and do the best you can.”
LearnVest, Inc. is owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin.