What happens when you don't pay your student loans

November 4, 2007 2:56 PM

Someone I know has decided that she is simply not going to pay off her student loans. What's going to happen to her?

She is from BC, Canada and owes something like 50K. She moved to Europe earlier this year to be with a guy, doesn't speak the language there and is unemployed with no prospects for employment. While she has talked about getting married, I have reasonable cause to believe that the relationship will not last.

It is not up to me to change her mind, but she is a very close friend of my girlfriend's and we are both wondering if there is anything we can say to talk some sense into her, bearing in mind that she is not really listening to reason right now. (She got angry at my girlfriend when my girlfriend refused to support her decision.)

Can she expect to be hunted down by debt collectors in Europe? If she ever returns to Canada will they grab her at the airport? What are the consequences of her decision? Or perhaps it really is possible to escape from the consequences by staying out of the country, in which case we should be supportive? (I really have trouble believing that last one but I will try to keep an open mind.)

posted by PercussivePaul to work & money (33 comments total)

You don't need to be supportive, because unless she's severely disabled and unable to work, she's defaulting on an obligation to pay back a loan undertaken with taxpayer's money. Not ethical.

At the very least, her credit will be ruined, and she will have trouble getting a job should she ever decide to return to Canada to work. She'll face steep interest and penalties and debt collectors calling all the time. I don't know if she can be seized at the airport, but for me, the prospect of ruined credit and job prospects is bad enough.
posted by Rosie M. Banks at 3:06 PM on November 4, 2007

If she has no job or income, she should just file for the interest deferment or whatever. Otherwise, the interest will just keep accruing.

Was she a minor when she got the loans? Did her parents co-sign? Her decisions may affect her parents.

Even if she applied for bankruptcy, she couldn't get a discharge on the loans for 10-13 years after she last attended school.

If she does return, BCSL can garnish her wages, government assistance (including GST rebate) and so on.
posted by acoutu at 3:10 PM on November 4, 2007

When we had our college exit interview, they assured us that the government would get their money eventually.

I believe they said, "the only way to get out of your student loan obligation is to die."

I believe they will arrest you at some point.
posted by rocket_johnny at 3:15 PM on November 4, 2007

they won't arrest you.

debtor's prisons were abolished 200 years ago.
posted by Mr_Crazyhorse at 3:18 PM on November 4, 2007 [2 favorites]

rocket_johnny: while that's always a flashy thing to tell students, it's not true. Permanent disability also qualifies you for dismissal of your loans. Additionally, loan forgiveness programs can get you out of paying ANY loans, depending on the amount, if you're a teacher in a low-income school, or -- because of a new law -- can cancel out the remaining portions of your loan after 10 years of income-based repayment (in which your payment is never more than 15% of your disposable income, as defined by a formula involving the federal poverty guidelines) if you work in any public service profession.

But yeah, barring that, you're boned. In the U.S., even if you signed off on the loan as a minor with no co-signer, you're still boned. I'd hope Canada would be better but I don't know.
posted by InnocentBystander at 3:36 PM on November 4, 2007

I just received this e-mail:
----
You can post this to the thread for other people to check out if you like; it's not something I like to boast about, though, so I'd rather not post it myself...

In my experience, absolutely nothing happens.

I didn't decide to run away from mine, but I left the country for some years, and didn't have any money -- etc etc, anyway, never heard a peep.

A dozen-odd years after the fact, back in Canada, I'm still not hearing a peep. This is good given that I don't work. However, I do have a mortgage (with somebody else, but jointly held), a Visa ('secured,' but), and a store credit card.

I have a good friend who never paid a dime on his, too; he's employed, not sure about his credit status, but it's not something that's caused him any problems.

Neither of us are proud of this, of course.

Anyway, this is not something you should lose sleep over vis-a-vis her friend. It's a poor decision, sure, but if she doesn't have any money, she doesn't have any money. Nobody will 'grab her at the airport' -- as somebody already pointed out, debtor's prison is old history.

----
thanks to the anonymous mefite for contributing.
posted by PercussivePaul at 3:38 PM on November 4, 2007

it's not really up to you and your gf to talk sense into her - end of story.

she may reach a point before long when she realises she screwed up in a number of ways and may turn to your gf for support. at that point it is up to gf to decided to continue the friendship or not.

but at the end of the day you can't tell your friends what to do about their finances/love life etc...and they won't thank you for it if you try.

if they ask you for advice maybe but at the moment she's happy where she is doing what she's doing...
posted by koahiatamadl at 3:48 PM on November 4, 2007

Back when I graduated from school, I had some school loans. I had no job, so I applied for a deferment of payments until I got work. It was granted.

Later, I got a job, and started paying off my loan. A few years later, I paid off the loan in total.

Skip a few years... Out of the blue, I get a notice that the deferred payments were due. I hadn't realized that it was a separate loan by the government of Quebec to defer payments. Obviously, I paid it as soon as I was made aware of it - I have excellent credit and want to keep it that way.

So - they certainly won't ever arrest you, but they may indeed track you down. And if they don't - they'll sell the debt to a collection company who'll be more than happy to garnishee your wages, should you have some.
posted by birdsquared at 4:07 PM on November 4, 2007

My brother decided to do pretty much the same thing in the US and it became a burden on the whole family. Just because they can't track her down doesn't mean they won't hassle her family with phone calls. At one point the collection agencies were calling our dad 10+ times a day to try and get a hold of someone, but he wasn't willing to give away my brother's information. If your friend's family isn't so forgiving, they'll find her anyway, and if they protect her info, the calls will never stop. Make sure she understands that the loans are going to get paid back anyway, and it saves everyone a lot of pain if it's dealt with sooner.
posted by fishmasta at 4:14 PM on November 4, 2007

I did exactly the same thing as your friend, in 1996 - fell in love with a Brit, claimed I was moving abroad, etc. I am married to a lovely American and still paying off my loan. If you have to hit her over the head with a frying pan, do not let your friend fuck up her life like this.
posted by DenOfSizer at 4:24 PM on November 4, 2007

Why does an unpaid loan make it difficult to get a job?
posted by bystander at 4:41 PM on November 4, 2007

In the US, they can and will garnish your wages until it's paid.
posted by tamitang at 4:43 PM on November 4, 2007

In the US, they can and will garnish your wages until it's paid.

Sure, but that isn't ruined job prospects, its just enforcing payment. Is there any other reason?
posted by bystander at 4:47 PM on November 4, 2007

Some companies will run a credit check on you, bystander, and if it isn't at a certain level, or there are certain red flags, they won't hire you.
posted by Monday at 4:59 PM on November 4, 2007

More and more employers are running background checks on prospective employees. Defaulting on a student loan doesn't look good and will rule out a defaulter for cash handling jobs. It just doesn't look good, period. I recently encountered a student who wanted to return to school to finish a degree but won't be able to get any new loans because he defaulted on previous loans. Even declaring bankruptcy will not make a student loan go away. It's on the credit report making it difficult to rent an apartment, get a mortgage or get a decent credit score.

I don't think people really understand what they are getting into with student loans. I know undergraduates coming out owing $100,000. That is a ridiculous sum of money to owe when you are 22 years old and have no real job history. Signing away on loans to finish school just seems like a formality until the reality hits after graduation when you realize you have mortgaged away your life for the next 20 years.
posted by 45moore45 at 5:01 PM on November 4, 2007

In the US, maybe the rules are different from Canada, if you default on your loans, they will put out a warrant for your arrest. However, the cops won't come knocking down your door searching for you. What will happen is if you get pulled over for speeding, the cops run a check and they'll see that on there and go ahead and arrest you. It's sorta like not paying your taxes, no one really searches for the small time offenders, but if they find you, the government won't let it slide. The government doesn't like it when citizens steal money from them.
posted by idiotfactory at 5:41 PM on November 4, 2007

Whether or not she should pay is not your question, so I'll leave that alone. What will happen to her probably depends on how easy to find she is, and maybe some other things, like is the 50k the original amount she borrowed? That may or may not be high enough for the bank to care about. If the original amount was 10-20k and it is now up to 50k because of interest accumulating over ten or more years, then maybe the bank won't care so much. Banks will try to go after larger, more accessible sums of money. The larger the sum and the easier it is to get, the harder they will try. It doesn't make sense for them to spend a lot of effort on small money.

So if she is hard to track down, they most likely will not try to find her. To become hard to track down she could:

1. change her mailing address and phone number (the one that she signed the loan with) to a very temporary one, let the loan company contact her (or someone there) a few times, maybe asking the bank for deferral forms so they have on record that she's having trouble paying, and then move and leave no forwarding information.

2. After that, never contact them. Never log onto their website to check how much interest she owes, and especially never, ever, respond to any collection agencies.

3. If they try to contact family members, have the family members say they have no idea where she is.

They'll probably send letters for a few years, but eventually those will stop.

Of course there's some risk that she'll get stuck later, but maybe that's a very small risk.
posted by strangeguitars at 5:43 PM on November 4, 2007

tamitang "In the US, they can and will garnish your wages until it's paid."

Monday "Some companies will run a credit check on you, bystander, and if it isn't at a certain level, or there are certain red flags, they won't hire you."

Both of these statements are very true. If you work in the US, they will find you, and they will garnish your wages. And you are certainly not going to get a job with USAA, Visa, or any other company that values it's security.
posted by B(oYo)BIES at 5:43 PM on November 4, 2007

It looks like everyone boiled it down pretty well:

1. bad credit rating
2. difficulty attaining loans in the future (unless they plan to mooch on someone else for life)
3. future employment problems
4. living with this on your conscience (if she has one)

That's very thoughtful of you to concern so much over a friend. I've found from experience that it's not worth helping people who are too stubborn to be helped. If you decide to extend some common sense to her and she turns the other way, I would say that you've done more than enough.
posted by brikee at 5:45 PM on November 4, 2007

I don't think people really understand what they are getting into with student loans.

You got that right. Banks are evil, and they do their best to make sure students don't clearly understand what they're getting into.
posted by strangeguitars at 5:47 PM on November 4, 2007

At one point the collection agencies were calling our dad 10+ times a day to try and get a hold of someone, but he wasn't willing to give away my brother's information.

Assuming you're in the USA, this appears to be a breach of the Fair Debt Collection Practices Act.
posted by aeschenkarnos at 5:58 PM on November 4, 2007

At one point the collection agencies were calling our dad 10+ times a day to try and get a hold of someone, but he wasn't willing to give away my brother's information.

Elaborating on what aeschenkarnos has said, once your father tells them in writing that your brother doesn't live there, and that they are no longer to contact him, further calls are free money (well, not free, but certainly a significant chunk of my annual income).

In the US…if you default on your loans, they will put out a warrant for your arrest.

This is just false.
posted by oaf at 6:24 PM on November 4, 2007

She is from BC, Canada

So, no need to assume where..

Anyway, there is a great documentary about this, from an Ontario perspective: My Student Loan.
posted by Chuckles at 6:24 PM on November 4, 2007

Ack, that isn't the correct documentary :P Try this link: My Student Loan.
posted by Chuckles at 6:25 PM on November 4, 2007

As stated before, if her parents co-signed her loans, that could lead to some credit problems for them. My brother decided to skip paying his loans instead of working out a payment of any kind with the loan company. My mom found out when debt collectors started calling her and harassing her.

She was not happy with my brother whatsoever. He is now paying a ridiculous amount in student loans because of his screw up, and that was just because of a couple months. My sister's morgage payments and student loan payments combined are the same as his because of him not paying.

This was in the US, but I assume co-signing is the same in Canada.
posted by Becko at 6:28 PM on November 4, 2007

1. bad credit rating
2. difficulty attaining loans in the future (unless they plan to mooch on someone else for life)
3. future employment problems

The more you intend to be a member of "mainstream society", the more it will matter to you. If you intend to have a mortgage, get a job, have 2.4 children, and live a life of quiet desperation like all the millions of other working stiffs, then you have every reason to do what they want you to do with your student loans, and no reason not to. The repayments are annoying but for them to be impossible is not economically sustainable. Live more frugally. If you want to play the game, you must play by the rules.

Alternatively if you can become wealthy enough, by whatever combination of luck and talent, to just pay them off, that will be fine too. The working stiffs and their masters are fine with that approach. This really is your best option.

Doing anything else raises the question of why you bothered to accumulate student loans in the first place. Over the last thirty years universities have changed from institutions of learning into mere qualification factories. Raw high school graduates are shoved into one end, and 'employables' emerge from the other, briefly blinking in the sunlight before diving into the working life that is their lifelong fate. If you wanted to be educated, you didn't have to go there. If you wanted to start a business of your own, you didn't have to go there. The only reason to go to university at all is to facilitate your metamorphosis into a working stiff, working so that somebody else can make more money than you are.

4. living with this on your conscience (if she has one)

That's just another way they get you: guilt. If you lived in a society that valued learning, then universities would not look and behave as they do, and learning would not just be free of charge, it would be a duty expected of all human beings. You were given training so that you could be used. To better ensure that you will submit to use, you are told that you owe money, and if you do not pay it, you are baaaaad.

In the larger scheme of things your attitude, submissive or defiant, is irrelevant. What matters is, the Man spent a lot of time and effort to plant his boot firmly on your face, and he will spend more to keep it there. If you can be found, and appear to have the capacity to pay, you will be made to do so. If you give them levers to twist, such as your relationship with your family, then they will twist those levers. That's what 'co-signing' and 'guaranteeing' is all about; the prospect of your parents being made to pay will make you pay, or make them make you pay.

If you are that keen on not paying, either stay apparently unable to pay and learn to like living that way, or don't be found, or get out of reach.
posted by aeschenkarnos at 6:34 PM on November 4, 2007 [6 favorites]

I'm pretty sure this notion of co-signing student loans has no relevance anywhere in Canada, certainly none in Ontario.

What they do in Canada is, they tell students "your parents should be supporting you, so you only get half the money you'll need."
posted by Chuckles at 6:34 PM on November 4, 2007 [1 favorite]

To the person saying that you can get arrested:

What the holy hell? Why are you giving out false information? Do you work for Sallie Mae? A collections agency?

I've defaulted on student loans (and am currently paying them back -- I was 16 when they were taken out, and I was just shown a stack of paper by an administrator who said "sign here, here, and here, we only have five minutes before you need to go to orientation" -- nevertheless, I am required to pay 'em).

I've been pulled over since then.

You're full of crap. Seriously, crap.
posted by InnocentBystander at 7:25 PM on November 4, 2007 [1 favorite]

I only had about $15K in debt when I graduated, but being an unemployed knockabout I really didn't have anything to report , cash-wise, so I never responded to any communications regarding that. It went into collections, and then I got a job. I called up the collection agency and said "will you take half tomorrow?" They agreed, and that was that.
posted by StickyCarpet at 7:53 PM on November 4, 2007

A salesman I once worked with had decided to not pay his student loans, and the feds eventually garnished his wages. (He was a drunk, and had lots of other problems, but oddly was an amazing salesman. Go figure.)
posted by Steve_at_Linnwood at 9:54 PM on November 4, 2007

A friend of mine defaulted on a student loan in the US, and not only did they garnish his wages but they nearly brought the default to court before he worked out a payment plan with them.
posted by rhapsodie at 11:40 PM on November 4, 2007

It depends a lot on what government or non government dept. is responsible for running the loan. The BC Student Loan is given out by the BC government, the Canada Student Loan is given out by the federal government and about 10 years ago, there was a short period where the government passed on student loans directly to the banks. So, she might get hassled by one and not the other, or both depending on the severity of the loan and how they feel at that particular time. In my personal experience, I found the Federal government much more efficient about wanting their money back.

However, these kinds of debts can lay in wait like nasty surprises for a very long time. If you want to give your friend a concrete example, try googling for the BC Medical Services Plan recent upswing in collecting old debts. Apparently they were notorious for being unable or unwilling to collect unpaid premiums, until about a year ago when they outsourced collections to the BC Revenue Agency. All of a sudden it was like Night of the Living Dead, if the zombies were 8 year or older debts (with interest, of course).
posted by concreteforest at 4:36 PM on November 5, 2007

Thanks for all the advice. It is tough to know what to do. koahiatamadl's advice (it's her life to screw up) rings truist to me. As hard as it is going to be to watch this train wreck in progress, were I in her position I can't imagine I would be receptive to such advice.

DenOfSizer's feels right to me too (hit her with a frying pan if you have to). I'm not in a position to do so. My girlfriend might be, but it might also be the end of the friendship.

I will do my best to be there for my girlfriend and help her figure out how best to help her friend. Thanks.
posted by PercussivePaul at 3:54 PM on November 6, 2007