How risky is it to default on your student loans when living overseas?

December 31, 2004 6:41 PM

How risky is it to default on your student loans?
I have a friend/in-law who has been living abroad (England) for the last 10 or so years. They never repaid their student loans before moving but do visit the U.S. fairly frequently. Is there any risk of them being caught entering or leaving the country?
posted by anonymous to law & government (10 comments total)

I don't know if they'd get snagged by law enforcement (though it sounds unlikely--wouldn't there have to be a criminal case pending?), but a friend who did the same things said the collections agencies found her pretty quick once she settled back in the States. However, they just set her up with a payment plan and after something like 6 mos worth of ontime payments the account was considered back in good status. No biggie.
posted by nakedcodemonkey at 7:05 PM on December 31, 2004

As n-c-m notes, there would have to be a criminal case in order for someone to get "caught", if by that you mean arrested. The worst, I suppose, would be that they would get served legal papers of some sort, but that seems unlikely (and, again, isn't the same as being arrested).

There haven't been debtor prisons in the United States for some time, and failure to pay student loans isn't criminal, per se.
posted by WestCoaster at 9:02 PM on December 31, 2004

I've never worked with a creditor as flexible and agreeable as the administrators for my student loan. Deferring and forbearance were both really easy when I got into some trouble and a long period of unemployment 2 years back. Low interest rates, they'll adjust payment sizes if you ask nice... I suspect ncm's experience above with a setup and payment plan is the most likely outcome if they did find your friend.

And given that, it'd be good karma for your friend to perhaps even initiate such a thing.
posted by weston at 10:33 PM on December 31, 2004

More than good karma, it's a good bargain if the friend can pull the account back into clean status now. With consolidation rates still hovering around 3% through June, it's a perfect time to lock in a lifetime low rate that should immediately cut down the monthly payment and save thousands overall. Unless they're certain of never having to pay it off, might as well grab the offer before rates start climbing again.

Remember: federal student loans are one of the few debts that can't be discharged by bankruptcy. One way or another, we're stuck with them. *groan* Might as well get rid of the debt as painlessly as possible.
posted by nakedcodemonkey at 12:35 AM on January 1, 2005

I defaulted on a student loan about ten years or so ago. Eventually they started keeping any income tax refunds I was due and applied it to my debt. I had my employer take out extra money out of each paycheck so my refunds would be fairly large and I paid it off that way.

All that said, I'm positive that this was probably the worse way to go about paying it back and am not advising it. I'm just saying that they probably won't have any problems getting in and out of the country.
posted by hootch at 11:07 AM on January 1, 2005

I should mention that it was a small loan ($2600), so it was fairly easy to pay back.
posted by hootch at 11:09 AM on January 1, 2005

With the exchange rate as it is currently, your friend could even just call up the student loan company, offer to pay off the loan on his/her credit card, and then just repay the credit card.

We're currently paying off my student loans on a monthly basis (due to the sheer amount of it), so every month, I call up, get put on hold, get transferred, get put on hold again, and then spend five seconds repeating my credit card details -- not the best way of doing it, but at least I'm taking care of it.
posted by Katemonkey at 12:08 PM on January 1, 2005

You cannot be arrested for defaulting on a student loan; however, the government can, and will, seize any tax refunds, etc., and potentially garnish bank accounts.
posted by Sidhedevil at 12:56 PM on January 1, 2005

Not only will tax refunds,etc. be seized, a federal default on your credit rating will automatically juice your FICO score by about 200 points. Financing a car, getting a mortgage and even getting competitive credit card rates will all become quite difficult. In addition, other federally guaranteed programs, like HUD and small business loans will become nigh impossible to get, and depending on the amount of the default, the borrower could even find themselves screwed if they're ever in need of a FEMA grant after a disaster.

Like credit cards, student loans, even with $10,000+ balances, can usually be kept current with payments that cover only the monthly interest plus $5 - $10. It's just not worth it to default. Not only is it ethically unacceptable, it's just financially stupid.
posted by Dreama at 5:07 PM on January 1, 2005

Tell your friend(s) to pay their loan back like the rest of us.
posted by Witty at 12:48 PM on January 2, 2005