How to Default on Student Loans

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  1. MX

    MX Gold Member

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    Breakthrough discovery published in Personal Finance Digest (http://www.pfdigest.com/).

    HOW TO DEFAULT ON STUDENT LOANS: It was a long struggle, but in Oregon, somebody figured out how to beat the system:
    The financial advice gets repeated as a mantra: Student loans are the one form of debt that can’t be forgiven, even in bankruptcy. But a Klamath Falls man has proven that’s not always true.
    Mike Hedlund waged a 10-year legal battle to force his lender to discharge most of the $85,000 in federal student loans he built up while earning his 1997 law degree from Willamette University in Salem. He argued that, even when working full-time and living frugally, he could not repay that much money and also maintain a minimal standard of living for himself and his family.
    Last week, in a decision that could affect debtors in eight states, a panel of the Ninth Circuit Court of Appeals in Pasadena, Calif., ruled in Hedlund’s favor.
    It upheld a bankruptcy judge’s ruling that Hedlund proved all three factors necessary to have $53,000 of his debt forgiven: He made a good faith effort to repay the money; he can’t earn enough to both repay the money and maintain a basic standard of living; and his inability to earn substantially more is likely to persist.
    There are a lot more details to the case if you’re interested. Mr. Hedlund, who makes $40,000 per year, still owes $32,000, but that’s a heck of a lot better than $85,000. I did like this paragraph toward the end:
    Natalie Scott, a Eugene lawyer who represented Hedlund, said lawyers for the loan agency suggested that forgiving most of Hedlund’s loans would “open the flood gates” to healthy college graduates claiming they couldn’t earn enough and demanding their loans be forgiven.
    Let’s hope so!
     
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  2. Gargoyle
    Original Member

    Gargoyle Milepoint Guide

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    The Loan Arranger rides again!
     
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  3. marcwint55

    marcwint55 Gold Member

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    I disagree with the idea of promoting a default on one's financial obligation. No one ever puts a gun to someone's head and makes them sign the papers. Just like so many who defaulted on their home loans and were rewarded, this is the wrong precedent if we expect members of society to follow rules and regulations. For every loan that is defaulted, someone else is bearing the cost. It might be stockholders of a corporation or it might be the federal government, meaning that all who pay taxes in this country are contributing for the benefit of one who wishes to defraud the system.
     
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  4. MX

    MX Gold Member

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    The background of this story is that college debt has been treated differently than any other individual or corporate obligations. It's not about "defrauding the system" at all. Bankruptcies and defaults are legal mechanisms within the system that allow individuals and businesses in distress to normalize their finances. Without these mechanisms we would not have a single airline or most banks in business right now to serve us.
    Additionally, college students are some of the most vulnerable and inexperienced segments of the population. I suspect they may've been excluded from the standard rules of lending specifically to make them more attractive targets for deceptive and predatory lending practices. I understand that many student loans are state insured, thus ultimately becoming a taxpayer liability. This scam has got to stop!
     
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  5. sailorprincess

    sailorprincess New Member

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    There is always an inequality even in honoring a loan. I remember an article that I used to read, it states that, bank should offer the least interest to student loans as they offers it to the elite people. The debt degree of young American adults -- those under the age of 35 -- has taken a steep dive in the last ten years or so, according to a brand new study. Usually, that would sound like good news for the economy.

    In reality, however, it suggests a very unpleasant pattern. The reason that debt has fallen so sharply is because today's young adults have too few resources to consider taking on new loans. Source of article: personalmoneynetwork.
     

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