Giving Up on Paying It Back

In a 2011 essay for AlterNet, Natalia Antonova explains why she’s decided to default on her student loans. It’s pretty incredible, and quite moving: “And defaulting would not only mean a ruined credit history, it would mean that my debt would double, triple, quadruple, etc … I would be a slave forever. But I took a long, hard look at the numbers, and I realized that I am already a slave.”

Her original balance was $37,099.00. At the time she decided to default, her balance was $35,908.41. She had been in repayment for five years, and had paid a total of $23,449.65. She writes, “I was done before I even knew it.” I would consider this a must-read.


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Megano! (#124)

Holy shit, her interest rate must have been insane! Yeah if I already technically paid back more than half, and only actually paid like 2000 dollars because of interest, I would default on them too. That is bullshit.

@Megano! That really is truly bullshit. How is this even allowed? Sure I get that some interest needs to be charged in order to make lending work, but that is just ridiculous? A bank can lend a similar amount of money to buy a car, still make money, and not charge insane amounts of interest and fees, so could these student loan companies. Thank God I live in Canada and had lovely parents that paid for my relatively affordable education.

@This is my new user name Student loan interest rates are higher than mortgage rates, but generally lower than car interest rates and much lower than credit card interest rates.

If you got a mortgage on a $200,000 house for the most advantageous rate possible — 3.6% or so — you’d be paying $4,154 in interest, per year, compared to just $3,591 in principal.

Instead of doing that, I suppose you could move into your parents’ basement and save the entire $7,745 a year until you had $200,000 to buy the house in cash, but that would take 25 years. Likewise, Natalia could have saved her $390 monthly payment for eight years and THEN completed a year at Duke…

@stuffisthings Whoa what kinds of car interest rates are you getting? Unless your car dies and you need a new (and I mean, new new) one immediately and can’t wait for a sale, there’s no way you should get more that 2-3%. Maybeeeee 5.

@polka dots vs stripes Oh, I’m not an expert on car buying actually (the one time I took out a car loan, I already had pretty bad credit, and yeah now that I think about it I guess the interest rate was still only about 5%). I do know that my student loans are mostly about 6.5% aside from one 8.5% Grad PLUS loan. My credit card interest rate is something like 22% (again, bad credit!) but I don’t know of anyone who gets much below 10%. I just checked that a 30 year fixed mortgage is 3.625%, which is about the lowest rate any consumer borrower would get on anything aside from, I guess, an advantageous car loan? And even at that rate you will pay more interest than principal.

Mike Dang (#2)

@stuffisthings Don’t forget about the FRED app!

@Mike Dang Oh — I had thought the Fed was just an Apple fanboy but it turns out there is in fact an Android version.

I still prefer to get my economic data in a stream of incomprehensible numbers spooling continuously out of a telex machine, personally.

I just wrote a bunch of stuff about how this made no sense until I finally noticed the words “government loans.” So she is talking about a PRIVATE loan here! Very, very important to make that distinction.

Markham (#1,862)

@stuffisthings I did an analysis below, it still doesn’t make sense, I ran the numbers.

The ONLY way it makes sense is if she did interest only payments and didn’t understand that she wasn’t paying it back, but, I dunno, something isn’t right.

r&rkd (#1,657)
iffie (#1,911)

@josiahg bankruptcy for life! well, not for life but seriously more people need to think of this as an option if they’re in a situation they can’t get out of.

kellyography (#250)

I don’t think I even understand what happened here. I have also been in repayment since 2006 on a loan very similar in size, and made the minimum payment monthly until a March of 2011, when I kicked it into high gear and started higher-than-the minimum payments. I will pay off my student loans in 3-4 months. I know our situations are different (I live with three roommates, no kids, not much of a social life), but I still don’t understand the numbers of it. How did she pay back $20,000 but still not get anywhere with the principle? Were those payment-minimizing programs really just screwing her? I am terrible with finance calculations so maybe this is really obvious to everyone else. This is also why I have no idea what is happening with my 401(k) and will probably never understand how to invest in anything. Does not compute.

@kellyography It’s possible she got on an interest-only repayment plan. As I noted above, since it’s a private loan most of the normal rules and programs (like IBR) don’t apply, and the interest rate is probably significantly higher than a gov’t loan.

I highly recommend you learn to use the Excel functions relating to loans (e.g. PMT, CUMIPMT, etc.) to see how varying your payment amounts, term, and interest rate can change your monthly payments and how quickly you pay off your loan.

WaityKatie (#1,696)

@stuffisthings Or maybe they piled on a bunch of fees and penalties that she had to pay also? But I also want to rant about the usurious interest rates. The interest makes me so angry. Why are the rates so high and arbitrary? Why should someone who graduated in 2001 be paying a wildly different interest rate than someone who graduated in 2005, just based on sheer luck and chance? Fine, I suck for borrowing money to go to school and I should live in shame about it forever, I can do that, but WHHHYYYYY must I pay these super high interest rates forever that will lead to me paying off what I borrowed 3 times over? People can refinance mortgages, so why not student debt? I really have never gotten a good explanation about this, it’s usually just along the lines of “banks need to make a profit and you should have gone to community college instead, peasant!”

Interesting read, and good luck to her on this process. In a few years, after her student loans have defaulted and more accrued interest and fees have been added (including “servicer / collector” fees of 10-15%), they will start garnishing her wages, put a lien on her house and put her through other forms of financial hell.

r&rkd (#1,657)

@Sue Anne Reed@twitter
There’s a cap on how much of your paycheck can be garnished. It might be less than your loan payment!

la_di_da (#1,425)

Also, doesn’t it say she lives abroad now? How much power does Sallie Mae have outside of the United States to garnish wages and the like?

Also, I concur with the ridiculousness of all of this, giving $23,000 and only having a 2,000 reduction in principal to show for it is ridiculous. $40,000 isn’t even the worst loan amount I’ve heard of–but some of these private loans can kill you!

Yikes. I also find it sad that the author felt she had to come up with all these hypothetical questions to answer to justify her decision like “You knew you would be in debt! Why did you go to school! Interest is necessary!” Are there actually people out there who think that it’s reasonable to pay $23,000 for every $1000 of a loan?

WaityKatie (#1,696)

@redheaded&crazy Sadly, yes. I might even go so far as to say that a majority of Americans think several of the things she listed! I have debt and hear them all the time.

@WaityKatie I guess I can’t say I’m all that surprised but … what the fuck people!!!

Markham (#1,862)

Something is really, really, really, fishy here. So much so that I think the writer of the Alternet article is lying.

She’s claiming that between 2006 and 2011 she paid $23,449.65 and only $1,190.59 towards capital on an original balance of $37,099.00.

I know she says they were private loans, but Sallie Mae was just doing Government backed loans until ’04 so while there is some overlap there that idea sounds fishy.

Either way the numbers don’t add up.

She’s claiming that she paid $1,190.59 in principle, $22,259.06 in interest for $23,449.65 total over the past five years. THE ONLY way for that to be true on the interest side is if she had an interest rate of about 14.02345% on a ten year loan.

Here is the thing though, she would’ve still paid $12,333.71 in capital!.

So the only way this is possible is if she went interest only for multiple years, instead of taking a lower payment that extended the loan duration (saving about $140/month) and/or incurred some fairly onerous fees. Thing is, if you choose interest only then you’re choosing NOT to pay it off, so…..

The thing is – she borrowed $35k an amount that could’ve been covered by Stafford Loans so there would be zero reason to go with Private Loans.

I dunno – something isn’t adding up, I get that you can get raked with loans but this sounds really fishy until she decides to release more information I simply don’t believe this.

This number sounds more like the loans you’d get to go to some shady for profit university that isn’t able to access Federal Student Loan funds, not Duke.

Also you can’t release FEDERAL STUDENT LOANS in Bankruptcy Court, private loans are fair game.

Something isn’t adding up.

I will say that we need to be more realistic about student debt in this country. In the article’s comments someone mentioned having high student loan debt for a degree in religious ethics, um….

…if you borrow $60k for a degree you can’t get a job with, why should the tax payer just cover you?

I also people who make six figures who act butthurt about their loans.

The system needs reform to be sure, but I think people also need to be realistic and take more responsibility. If you have huge debt on your way to be a nurse, teacher, or even a doctor or lawyer, and it’s making life hard I feel for those people. But if you were just a professional student with no plan on making money after college, well….

Taking the tact of we’re all oppressed by our student loans isn’t exactly a mature attitude, both consumers and the financial industry needs to change their ways, it’s not a one-way street.

Mike Dang (#2)

@Markham From my understanding of it (by looking at the numbers in her account), it looks like she was paying back an unsubsidized private loan that was accruing interest while she was in school and making no payments. The capitalized interest is nearly $9,000 on top of her original balance of $37,099, so when she graduated and started repaying back the loan, it wasn’t $37,099 that she was paying back, but $45,885.

@Markham Yeah that’s what I thought too. I started to run the numbers (using gov’t loan assumptions) but then gave up when I saw that she was referring to private loans. Generally I don’t believe in second-guessing people’s decisions like that — here on the Billfold I try to only run numbers when I think it will be helpful, not to prove people are lying/stupid. But in this case some of the details really struck me as odd.

Markham (#1,862)

@Mike Dang I think the capitalized interest was included in the original balance, as it would make more sense to show original balance + capitalized interest and overall total. Hence her assertion that she only paid it down from 37k to 35k. Otherwise her argument would be I paid it down from $45k to $35k in five years despite deferments, which would suggest that as the balance declines and the ratio of interest to principle goes more in her favor she would definitely be able to pay it off. Instead she said she only paid down barely $2k.

However if you adjust the numbers for a higher balance than her interest rate was 11.691 or so, and she still pays about $16k towards the principle though. UNLESS she was going the interest only route, which (again) is effectively choosing NOT to pay the loan, as the minimum payments would include interest and principle.

If this was published in the WSJ I wouldn’t question it as I would think they would’ve verified it, but I have less faith in Alternet and the numbers don’t make sense. At the very least I wish she had explained the odd numbers to us via fees, penalties, interest only payments, etc.

@stuffisthings: the numbers are so bad in this case that I couldn’t help myself, because she’s either not telling the truth/withholding information OR this is such an outlier case that it doesn’t belong in the discussion.

WaityKatie (#1,696)

@Markham You actually can’t discharge private student loans in bankruptcy either, they changed that rule a few years back.

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