The Dangers of Defaulting

FinAid.org has a loan default calculator on its website that calculates how much it costs to default on student loans. I calculated the default costs with my current federal loan and the results were startling. In my situation (long repayment term, low interest rate), the total cost of my loan after 12 months of non-payment would increase nearly 80 percent.

And if after defaulting I paid the minimum each month for the life of the loan, the added collection costs would mean paying off my loan until I am SEVENTY. I’d be cashing in social security checks before I paid off my student loan debt.

FinAid.org also has a calculator that looks specifically at the impact of collection costs on how long it takes to pay off student loan debt after a default. Right now, maximum collection costs—fees charged by collection agencies—are not well-defined in the federal loan program, but can be as high as 40 percent. If I defaulted and a 40 percent collection cost were added to my loan, I would have to live until 104 to pay off my loans. Well, at least student loan debt is discharged when you die.