Default on Student Loans - Why Not?

[Savoir Faire-Demogague in NJ]

Fraud?

[Deleted]

What SF said: fraud. In bankruptcy, I've heard that the judge looks back for a certain amount of time. Otherwise, once you decided to file, you'd go shopping (or hit the atm!)

[haapai]

I'll throw out ineligibility for a chapter 7 BK as an answer. You might only be eligible for a Chapter 13 and the judge might rule that you have the ability to repay some or all of the debt.

[hoops902]

There's no reason you couldn't do it, you'd just have to do it long before filing bankruptcy so as to be far enough away from filing that they wouldn't look back to what you did.

"You could take cash advances and then use them for whatever they want. "

Not necessarily. You can't decide you're going to file bankruptcy next week and so advance all available credit and give the cash to your family/friends now. They're going to look back at least 6 months and I think several years is more likely. While bankruptcy can eliminate some of your debts it's not quite the free-for-all you seem to envision. If it was then no one would ever go into bankruptcy with any assets, they'd simply give them all away the day before filing if they weren't protected under bankruptcy laws.

[Deleted]

This is actually something I've wondered about in the past. I don't have student loans (neither does DS), so nothing to gain from the idea. It did seem to be a way out of student loans, but in a way I'm happy to see there are some obstacles to it.

[cubefarmer]

You should have charged the tuition in the 1st place and not taken student loans. That's how we did it a long long time ago. It used to be really hard to qualify for students loans, so credit cards was the only other option - in addition to working of course.

[Deleted]

I didn't think it was possible to default on a student loan. Probably because you don't have to put anything up for collateral if you can't pay the loan. IMO it's kind of ironic to have to default on a student loan as having a college degree should technically improve your chances of getting a good job and hence making decent money.

[Cookies Galore]

Feb 11, 2011 9:14:21 GMT -5 @moneyjenny82 said:

I didn't think it was possible to default on a student loan. Probably because you don't have to put anything up for collateral if you can't pay the loan. IMO it's kind of ironic to have to default on a student loan as having a college degree should technically improve your chances of getting a good job and hence making decent money.

It's easy if you just decide to never make a payment. Ask my loser brother!

[Deleted]

LOL, that reminds me of Original Kings of Comedy when DL Hughley was talking about bill collectors:

Bill collector: "so, Mr. Hughley, when can we expect payment?"
DL: "you can EXPECT payment anytime you want. Let's pick a date - we'll both be surprised together!"

[Deleted]

I believe the look back period in bankruptcy is 2 years, but if it applies, the look back period under the Uniform Fraudulent Transfer Act is 4 years. Sometimes debtors “fraudulently” transfer an asset without realizing it (like giving a son your car and transferring it into his name), but the scenario described above would be an intentional fraudulent transfer.

Bankruptcy fraud is a crime and not only would you have to pay the money back, you could also be criminally prosecuted. "Bankruptcy Planning" isn’t new, so I suppose with years of proper planning it could be done, but who wants to live like that?

[cronewitch]

Why not pay you student loans while charging your cost of living so you pay down the student loans 500 a month and increase credit card debt slowly paying minimum payments for a couple of years. My bills sometimes go straight to credit cards like my cell phone bill and my car insurance so it wouldn't seem odd except I never have a balance.

Or you could honor your word and pay everyone what you borrowed.

[Gardening Grandma]

So, why not take out a bunch of cc's, take cash advances, pay off the student loan and then default on the CC?

Because I would not be able to sleep at night.

[Urban Chicago]

Another thing, most people who are "in trouble" with student loans owe 100K plus, way more than most people could charge or cash advance on a credit card.

[Deleted]

I also think people are missing the point that there are other ways to pay for college other than taking out a loan. You can live at home and manage costs with working part-time/having parents help some. You can go to a community college for two years while working full time and living at home, and use the money you saved working to pay for the next two years at the 4-year college. Or you can get your degree part-time, work full-time and have your employer reimburse you (that's how I'm getting my Master's degree).

[Deleted]

I get why school is so expensive (easy-to-get loans and demand), but I don't understand why people continue to pay, especially for these over-priced private schools. When I was in high school, I wanted to go to NYU. Thank God I went to a state school (out-of-state though) - tuition plus room and board is near $70k a year!!!!! DH's cousin went to NYU film school as an undergrad. Over $200k later he's working at the Apple store at the mall.

[Poppet]

I get why school is so expensive (easy-to-get loans and demand), but I don't understand why people continue to pay, especially for these over-priced private schools.

Our society tells us that college is the only pathway to success. They tell us the 4yr degree is the new high school diploma and w/out it you won't get a good paying job.

We continue to shove our kids into college because it's also to many a status marker.

The main reason is fear of what will happen if we don't go to college. So we take out crazy loans to pull it off and feed the machine.

[Deleted]

well now the college degree IS the new high school diploma, so now we feel that we need graduate degrees. I'm getting one now, but it's because I knew I always wanted to get one. Plus my company is reimbursing it, so it's pretty cheap. I'm also hoping it, combined with my job experience, will help me land a better position either at this company or another one.

[dianartemis]

I think we need to get back to more vocational schools. Not everyone is cut out for 4 yr Uni. The community colleges in my area are beginning to cater more and more to Uni prep (the first 2 yrs) and dropping some of the more vocational type schooling.

[TheOtherMe]

Feb 11, 2011 10:33:38 GMT -5 Gardening Grandma said:

So, why not take out a bunch of cc's, take cash advances, pay off the student loan and then default on the CC?

Because I would not be able to sleep at night.

Exactly

[Firebird]

This has been discussed before (on the other boards at least). BK attorneys check for this kind of thing nowadays. It's harder to get away with than it used to be.

Plus, it's wrong?

[mui1080]

Depending on who the loan is from, you cannot pay back SL's with credit cards.

[olderburgher]

Hey lets cheat someone out of some money! We'll borrow it promising to repay it and then screw them out of it. Heh heh. Exactly how many ethics courses did you fail while obtaining your degree?

[Clever Username]

<<Depending on who the loan is from, you cannot pay back SL's with credit cards. >>

It doesn't take a genius to work around this.
Simply use the cc for rent or groceries while using your salary to pay off student loans.

Six months to a year's worth of regular payments is often enough to wash the idea of fraud out of everyone else's mind.
Yours may be another story.

Two hurdles:
Are you really in the low income/low asset scenario of a CH7?
Do you have the available credit?

[DVM gone riding]

Another reason is not enough credit to make it worth it!! I have 80k in SL There is no way I could take out those kinds of cash advances and for 3-5k people shouldn't be declaring BK

[achelois]

Why would it be wrong? Bankruptcy is legal.


Certainly isnt any more wrong than buying a second home while you have good credit and then defaulting on the first mortgage.


Credit card companies know they run the risk of people defaulting just the way mortgage lenders do. They plan for this by adjusting interest rates.

If you can strategically default on a mortgage, you can strategically default on a cc.

It is just another economic decision in which morals/ethics have no part.

[Firebird]

Feb 11, 2011 18:02:07 GMT -5 achelois said:

Why would it be wrong? Bankruptcy is legal.


Certainly isnt any more wrong than buying a second home while you have good credit and then defaulting on the first mortgage.


Credit card companies know they run the risk of people defaulting just the way mortgage lenders do. They plan for this by adjusting interest rates.

If you can strategically default on a mortgage, you can strategically default on a cc.

It is just another economic decision in which morals/ethics have no part.

*headdesk*

Defaulting on a mortgage is not fraudulent behavior, at least not under the current law. So people need to decide on their own how they feel about it ethically.

Paying student loans with a Visa card while intending to declare bankruptcy on that Visa card, on the other hand, is fraudulent behavior. So at a minimum, this is a very different discussion than the one we've been having on Petunia's thread.

If you can be criminally prosecuted for a certain financial behavior, then the ethics aren't really open to debate. I've contended all along that you are allowed to decide your own ethics only on behaviors that are LEGAL. This isn't.

Criminal behaviors do, in fact, tend to be... wrong.

But, you want to twist my words-- go for it.

[olderburgher]

You confuse illegal with ethically bankrupt! Not the same.

[WannabeWealthy]

It can be done. And you don't need to file bankruptcy in order to not pay back your CCs. Just don't pay them. They'll default, but you will hardly get sued for CCs unless they are of a high dollar value. Most companies will just write it off.

[973beachbum]

Feb 13, 2011 5:30:04 GMT -5 Lady Gaga Gaga Snerd said:

Defaulting on CC's is not fraudulent behavior either. Thus, my point. If we are going to split hairs, why not go all the way?

Maybe this is splitting hairs but while defaulting on a CC isn't fraud in and of iself, charging on one with the intent to never pay it back certainly is.

I think it's the intent that makes all the difference.

[bobbysgirl]

Feb 11, 2011 7:39:04 GMT -5 @southernsusana said:

What SF said: fraud. In bankruptcy, I've heard that the judge looks back for a certain amount of time. Otherwise, once you decided to file, you'd go shopping (or hit the atm!)

Can a bankruptcy be denied? I never thought of this.