As I’ve mentioned before, I graduated from law school over $150,000 in debt. As many of you know, I haven’t exactly paid all of that money back. Not making payments that first year was all my fault. I wanted to get married, didn’t have a credit card, and was using money that should have been going to my loans to finance my wedding.
After that first year, things got a little out of hand. My debt was being sold, the monthly payments were outrageous, and I wasn’t really paying a lot of attention to the situation during the few times when I was both awake and not billing hours. Then I quit my law firm job, hilarity ensued, and I woke up one day with a credit rating below 550.
I’ve been paying the minimum balances to various collection agencies since 2007 or so. Whatever. My hopes for paying it off or owning property pretty much rest on my ability to hit the lotto. Most likely, I’ll die still owing money for law school. And that will be the story of me.
A reader emailed us, asking how bad non-payment of law school debt can really be. As one who has walked this path for eight years, I can honestly say it’s not that bad. Sure, it’s a completely different lifestyle than my friends lead. I can’t do “normal” things like get a Discover card or answer my unlisted telephone. But once you get used to it, it’s really not that bad. Your creditors will take away everything they can, but living a paycheck-to-paycheck, judgment-proof existence isn’t as bad as people make it look when they are trying to get you to sign up for a “free” credit reporting service….
Here is the question from a reader:
I want to stop paying my loans, force them into default, and once they have been sold to a collection agency (probably at less than face value), pay an agreed lump sum to discharge all my loans. Have you heard of anyone doing something similar? If so, what did the collection agency agree to in order to discharge the loan (50 cents on the dollar?).
What are the repercussions besides the low credit score? Do legal employers look at credit score when making hiring decisions? Your advice would be appreciated.
To be clear, I did not force my student loans into default as part of some self-directed plan. I’m not that smart. And if I had it to do over again, I probably would have found some way to make minimum payments on everything. Some people, especially landlords, treat people with low credit scores worse than ex-convicts. I am not advocating a plan to send your debt into default.
But 50 cents on the dollar? Don’t give them that much, bro’. If I had the money, I could get out from under my debts for about a third of the principal that I still owe. Easy.
And don’t buy their BS that it’s just a “one time offer” or anything. Look at it from the perspective of the debt collection agency. Most people are like me, people they have to chase around to get a piddling monthly minimum payment. If they can close the book on that time-and-money suck for a lump sum, they’ll jump on it.
Just don’t gloss over the “low credit score” thing because it really, really sucks. Living with no credit actually means you have to become much better in terms of making a budget. You cannot screw up because you don’t really have a margin for error. Emergency purchases (the worst are when people die suddenly and you have to hop on a bereavement fare on a moment’s notice) can totally throw you without a credit card. And forget doing things like renting cars.
Or owning them, unless you can walk into the dealership and pay straight cash, homey. If you are trying to rent an apartment, be prepared to be rejected out of hand by most places, and only have a shot at a few units if you have two, three, maybe even six months of rent up front, in cash, that you can drop on the landlord or management company. You will not have a doorman. (The best is when they ask you if you have a family member with good credit who can act as a guarantor. Yeah buddy, because I’m massively in debt from financing my own education while my parents didn’t help at all, but mommy and daddy are secretly loaded and have no financial problems of their own. That happens.)
But it’s not all bad. The only employers that regularly do a credit check that matters are employers in the financial services industry. Do you want to work in-house at a hedge fund? Well, then having crappy credit that you can’t explain might be a problem — though having crappy credit that you can explain via “Dude, I paid it off for 30 cents on the dollar” might make it okay. And even with all that, the only people I know who got rejected from a legal job for “bad credit” are people who would have been nixed for whatever, eventually.
Actually, I’d go so far as to say that living in world where your creditors are constantly angry with you is kind of liberating. I mean, I pay my federal loans back, so it’s not like anybody is going to garnish my wages. Beyond that, what can they really do? Send in a SWAT team? Every six or eight months they call and they tell me that I need to be paying more money. Every six or eight months I send them a pay stub and say, “Really?” They threaten. I say, “Well, you could take this money I am paying you or I could stop paying, you could sue me, and in two years a judge will order me to pay you pretty much what I had been paying you.” It’s not like I have any assets. You don’t get into the situation I’m in if you have stocks and bonds and trust funds and all that. You get into this situation from owing more money than you can pay back.
You want my advice? Having your student debts go into default is survivable. The world will not end. Your girlfriend will not break up with you. The creditor will not show up at your house with a guy named Rocco looking for a few hundred dollars.
Survivable, but not desirable. If I could go back 11 years ago, I wouldn’t have taken out the debt in the first place. If I could go back eight years ago, I would have made minimum payments to keep them out of default. Of course, if I could go back 30 years ago, I’d tell my mom to invest in Apple. Whatever. Hindsight is blinded by obviousness.
And so I refuse to be an indentured servant to my debts. Life is too short. You can never be truly free of your debts (until they’re paid off), but you can be free from the fear of them. Debt collectors feed off of your fear. And most people are all too willing to allow fear to dictate their decisions.
If you have a plan for your debts that makes sense to you that you think you can live with, don’t be too afraid to follow it. You don’t need my advice, because you are the one who has to live with your choices. I can live with mine; that’s really all I can tell you.