Question:
Dear Steve,
Duke MBA grad, living abroad, Non-US citizen or resident, owing $196,000 to a Credit union in NC. Duke University is my co-signer. Monthly expenses are $2,000 over monthly income. Student loan payments of $1,560 represents 52% of monthly income (around $3,000)
Outstanding balance: $196K
Monthly payments : $1,562 (fixed)
Interest rate: Prime Rate + 5%
For example 8.25% in 2015, 9.50% in 2018
Number of monthly payments: 300 (and increasing due to higher prime rate)
*Prepayments allowed but will reduce # of payments, not monthly payment
As an international, what are the consequences of defaulting? I’d like to pay off and avoid default. What better terms could I negotiate?
Thanks!
Luis
Answer:
Dear Luis,
I’m surprised Duke University is your cosigner, I thought they’d never get involved in something like that.
In reality, the consequences of defaulting are minimal if you are not planning to live and work in the United States again. You will be able to come and go from the United States without any issues as a result of the defaulted debt.
But if Duke really is a cosigner I would first talk to your financial contact there and explain your situation. They may be able to help you work towards a lower payment. At the very least I’d give them a chance to intervene before you just default.
Defaulting on unaffordable private student loans, like yours sounds like, can actually open the door to negotiating a settlement where you would repay less than you owe to satisfy the debt.
If you do default you need to be aware the credit union can report your debt as a delinquent debt to U.S. based credit reporting bureaus, they could always sue you in the United States, and get a judgment against you that would earn additional interest which could be collected if you moved back to the United States to live and/or work.
So the bottom line is to talk to Duke and confirm they are a cosigner. If they are, ask for their help reduce the payments. If they are not and you stop paying the debt the credit union may eventually be open to negotiating a settlement. Different creditors have different policies when it comes to settlements.
If you want some outside assistance in working with the credit union to feel more comfortable you are getting a reasonable settlement offer, consider contacting a third-party or my debt coach friend Damon Day.
