Question:
I have a co-worker who just completed a master's degree. She told me that when she received new bachelor's degree a few years ago, she never paid one penny of her college loans back, which totalled over $15,000. She was actually quite proud of this fact, like this was some accomplishment, cheating the system! My husband and I worked really hard after we graduated from college and paid off over $25,000 combined in loans in just over 5 years.

I was appauled that a student could actually completely default on undergraduate loans and even be allowed to attend a master's program at the very same instiution where she got her bachelor's from. My co-worker was able to get a master's degree cheaply because where we work pays for 70% of the tuition at the university we both attend, so she did not borrow money for that degree. My co-worker is applying for a doctoral program at this same institution and says she has to a wait a year because she said after 5 years her "defaulted" loans would no longer show up on her credit report, and she could borrow money for her doctoral program, which I am sure she won't plan to repay either.

Can a loan officer on this list tell me how this can happen?!? I can't believe after completely defaulting on undergraduate loans, she could still be eligible for more loans for her PhD, even after 5 years. I feel like honest people like my husband and are subsidizing crooks like my co-worker who borrow money from the federal government to go to college and then don't ever pay it back!

Answer:
The five year rule is incorrect. If she defaulted then she will not be eligible for student loans. There is no rule against attending college after defaulting on a loan. Default on a federally backed student loan will result in attachment of IRS refunds, potential suspension of professional licenses and many other unpleasant consequences.