like they can for not paying child support? Let’s say I fail my nursing, compentency examination next Tuesday. That means I will be out of the program and no longer eligable for financial aid including loans. What would happen if I said “to heck with it” and became a stay a home dad and we lived off my wife’s impending RN salary (and hopefully CRNA salary in the future which would be much higher)? This would mean that we couldn’t afford to pay the student loans for about five years until she graduated from CRNA school. Would they take my house (and if so could I sell it to her now to avoid this from occuring).
One more thing. We are not LEGALLY married. We were married in a church without a license (a so called covenant marriage because I was going through one of my Libertarian kicks where I felt that a marriage was between a man and a woman, and God) and Indiana does not recognize so called “common law” marriages. “Our” bank accounts and car are already in her name only. Could I clean carpets or do residential appraisals (where the fee’s are often paid directly to me) without having the money confiscated? I currently owe about 25K in student loans by the way.
No, they can’t. There really aren’t too many ways to go to prison because of that type of debt in the U.S. However, it will make your life miserable. You will get many calls from the loan agencies and your credit will be shot to hell. Additionally, you will not be elligible for student loans again. It would probably be much better to wok out a new loan schedule.
I know some of this from not paying mine for 5 months many years ago.
I know you’re probably asking a hypothetical question, but I’m going to answer it as if you’re seriously considering it:
Jail? No.
Your credit rating will be shot, though, and if you ever do get a job on the books again they could probably garnish your wages. And good luck making your living under the table to hide from them. Can we say “IRS audit?”
Plus it’s just a shitty thing to do. How would you like it if someone owed you 25k and screwed you over?
Also, there’s just no reason to default on your student loans. They’re pretty reasonable people, really. As long as you show that you’re making an effort and intend to pay them they’ll work with you.
Change your name, move to another country: they’ll find you. They’re better than the CIA like that. They probably know whether or not you wear boxers.
Theoritically, if a loan collector obtained a judgement against you for not paying a loan, and you still did not pay it as per the court order, might you be at risk of being found in contempt of court, and might a punishment for contempt include jail time? (I don’t know what the laws are where you are – I’m just curious myself.)
What **Abbie Carmichael ** said. Also If you and your semi-non-spouse file jointly they will withhold “her” tax returns. If you file separately and don’t appear on her return, I would assume you might be OK there (IANAL or a Tax expert or an IRS official).
You will show everywhere as in default. Until you pay it down (to a very low level) it is a debt that cannot be discharged by a bankruptcy court. Once you start working again they will garnish your tax returns and perhaps your wages. It is very very likely that You WILL pay it back with interest unless you never work in the US again. From here it sure seems a mess of a short term “solution”. Work with them.
$25K is certainly no more than $171.88 p/mo (cite) . You may be able to get a better rate or spread it out longer at a lower payment. It is probably worth you taking a 10hour a week minimum wage pt/job to pay it.
And what makes the IRS involvement worse is that by this time, the Student Loan place has passed it along to a collection agency. They can add 25% collection fees. That hurts. Plus, student loan interest is tax deductible. The fees are not. And interest from an older loan is not either.
I found out about this soon after I got married. The $4,000 tax refund I was expecting was taken away to pay for my wife’s defaulted loan. (All very legal according to the US Code.) We have it all paid off now, and judging by the number of credit card applications she gets, her credit rating has improved. But it was a painful process that I would not recommend. Contact the Student Loan place. I believe they allow deferments for un- or underemployment.
However, there is another option- all perfectly legal. Declare Chapter 7 “no asset” bankruptcy. Wipes out the loan, and anything else you might own. Everything you earn you can get "over the table’ and pay whatever taxes are due. For 7 years, your creidit will be weird- after a while, you’ll actually start getting CC offers again- they’ll start with secured cards, then go to high interest/ high fee, then get better & better. After 7 years, your credit would likely be better than it is now. After 10, it is clean.
Really, if you can’t afford to pay the loans for 5 years- your credit will be ruined for those 5 years plus another five- so it’ll be worse. And the harrassment will be bad. But after filing Chaptr 7, no more harrassment at all.
There ya go- aLegal & moral way out. And, it’s better for them, as they can 'write it off" sooner, giving them a faster tax benefit.
You can’t go to jail for just defaulting on a loan.
If you lie about assets or income to avoid paying a loan or to mislead a lender then you can be convicted of a crime and sentenced to prison time for that.
If you are ordered to pay a loan out of your salary and you simply refuse then you would probably go to jail for that as well. Though typically a wage garnishment is done through the employer so you never have your hands on the money in the first place.
Which makes the whole thing somewhat embarassing because everyone would know your wages were being garnished.
**My credentials:**I worked for almost three years for the U.S. Department of Education William D. Ford Direct Loan Program
No, you won’t go to jail, but what’s been said about the credit reports etc is valid. Also, you cannot discharge a Federally funded or guaranteed student loan through bankruptcy.
Now, otoh, there is almost no reason to default on a student loan. The USDE will work with you many many different ways on your repayments. If you are unemployed you can request a hardship deferment in which you will not only not have to make payments but your interest will not accrue; if you are not unemployed but you are having a hard time paying your bills you can request an income based repayment (you may end up paying back as little as $14 per month until your income goes up) or you can request a forbearance (which is like a deferment but far more lenient [basically, you just have to request it- “I don’t want to make any payments until March” or whatever] but your interest WILL continue to accrue and will capitalize (i.e. be added to the principal) after a certain amount of time.
If you have loans that are already in default with a lender who does not offer these options, there is an excellent chance that (if you bring them up to date and pay for three months) you can get the government to purchase and consolidate them and then the goverment payment options will apply (and you will be eligible for school again). If you should go back to school, you can request not to make payments on your existing student loans until you graduate (whether or not interest will accrue depends on several variables).
Speaking of interest rates, since rates are low right now anybody who has Federally funded or guaranteed student loans should consider having them “consolidated” (a term that’s a bit misleading) as it will freeze your interest rate permanently at whatever that is right now. You can do this by calling 1-800-557-7392 or going here as this could save you thousands of dollars in interest payments once interest rates begin to significantly rise again. (The rep will be able to tell you whether your loans are eligible; if they’re through Wm. D. Ford they automatically are and if they’re through Sallie Mae they most likely are; other lenders vary.)
And the answer to the second is, not under Chapter 7 unless you can convince the court to give you a hardship discharge, which is extremely difficult. They can be included in a Chapter 13 repayment plan.
My bankruptcy prof told us that the reason student loans are no longer dischargeable is that there was a growing trend among law students to obtain their degrees on student loans and, upon getting the degree, immediately filing bankruptcy to have them discharged. Congress got wind of it and changed the bankruptcy laws. Don’t know how true that is but it made for an entertaining story.
It was also common among medical students (to whom $150,000 is not an uncommon amount of indebtedness) who knew that being a doctor they would not have a hard time borrowing money for a house even with a bankruptcy once they got their career underway.
Personally I think that the USDE loan policies are wwwwwaaaaaaaaaayyyyyyyyyy too lenient. You wouldn’t believe how many people I spoke with who owed $75,000 by the time they graduated with a degree in Art History or Theater or something equally unemployable, yet the limits were the same for them as they were for somebody studying medicine or pharmacy or nursing which was instantly employable. (Of course for a degree in nursing and most other medical fields there are tons and tons and tons of free money sources available- contact your nearest AHEC and they’ll be glad to hook you up.)