Friday, October 02, 2009

More on Student Loans and Defaults

I've been having a conversation with Zapporah over my previous post on the Student Loan Scam.

I think it deserves its own post here, since this is an important issue which affects people for their entire lives.

Zapporah said...
Please answer me this... I just graduated college and I am moving to Israel in just a few months. Can I escape these high loan amounts in Israel? What will happen to my credit rating in Israel? Is it the same as in Canada with the new social number? What will the repercussions be for me in Israel?Thank you so much for this article.
8:49 PM

Ephraim said...
Hi Zapporah,There is no such thing as a credit history in Israel. At this time, lenders do not persue delinquent debtors outside of the United States. Also, there is no debtors' prison or anything like that, so you can fly back and visit as desired. Please note, however, that as of the writing of this comment, there is still no bankruptcy or statute of limitations on student loans. Therefore, if you default, and then you return to the U.S. after 20 years, your debt collectors will be waiting for you. Also, over the next 20 years, there could be a change in finance laws which makes it easier to persue debtors abroad. Nobody really knows which direction this will go. But for now, you will be safe from the loan collectors.

Zapporah said...
Ephraim, thanks. I signed up for as many classes as possible to get out of school in 18 months so I didn't have to pay more money. I knew my end date would be in June, but it kept coming up for Sept and no one could answer me why. I ended up being charged $3,000 more for the 3 months they added on because they didn't put me in more classes to get out of school by June which I signed up for. I was fully prepared to pay the $15,000+ amount but after reading this and getting $3k+ tacked onto my bill, no way am I going to start repayment. I will try for one more month to get the school to wipe the $3k off and if they don't, I'm out. Thanks a lot.

And Ephraim Says:

So basically, your college ripped you off. This is actually somewhat unsurprizing. Many colleges are now run more like businesses than educational institutions, and with a profit motive involved, inevitably there will be crooks and thieves in the mix.

However, please bear in mind one thing. If the college goes forward with charging you $3,000, then they will probably just take the money straight from the lender, unless you can find some way to convince the lender not to send the money to the university. Basically, if you default, the odds are that the university will get the money regardless.

If you do default, keep in mind that this debt will balloon with late fees and astronomical interest rates. They will not be able to come after your income as long as you are here in Israel. However, they will be able to sieze your tax returns (you still have to file tax returns from Israel to the United States every year, even if you are abroad.) That means that things like the stimulus checks or any other sort of money you would ordinarily receive on your tax returns would be lost.

More importantly, if say in ten or twenty years, should you decide to return to the United States, even if just to work for a few years, the creditors will come after you and attempt to garnish your earnings.

My own opinion is that people who are trapped in this hellish mess of massive and unrepayable debt should flee the United States as a last resort. However, this has dire personal consequences and probably shouldn't be undertaken unless the debt is so crushing that it is impossible to repay.

It's just a good idea to think about the ramifications of a decision which will affect the rest of one's life.

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