One sign of the bad economy is the increasing default rate on student loans. More than half of all new college graduates have student loan debt upon graduation. While the default rate for students who attended private colleges is significantly higher than that of students who attended public colleges, the disparity presumably is due to the higher cost of attending a private institution.

Individuals faced with mounting debt often cherry-pick their debts, choosing to pay certain loans and ignore others based upon perceived consequences. For example, defaulting on a mortgage can result in foreclosure and loss of the home, a significant consequence. Defaulting on a car loan can result in repossession of the car, another significant consequence. Defaulting on a student loan does not appear to have the same harsh consequences.

A word to the wise: Avoid defaulting on student loans at all cost. In most states, defaulting on a student loan by a health care provider is grounds for emergency suspension of that provider's license. An emergency suspension means the suspended provider is immediately prohibited from practicing their profession. Defaulting on a student loan is also grounds for additional discipline against the health care provider's license. For example, Florida may impose a fine based on a percentage of the loan in default.

The federal government also is aggressively pursuing health care providers who are not repaying student loans. Defaulting on a federal student loan can result in exclusion from participation in all federal health care programs, which makes it nearly impossible to practice. The government can confiscate tax refunds and apply those refunds to a federal student loan in default, and it can garner some of the social security retirement benefits of a person in default.

Health care providers facing default on their student loans may consider bankruptcy as a way to eliminate the debt, but be forewarned: Student loans are very difficult to discharge in bankruptcy. In order to discharge a student loan, the borrower must show that repayment of the student loan creates an undue hardship. This means the borrower must prove he cannot provide even the bare minimum standard of living when paying the loan.

Health care providers must explore every opportunity to resolve outstanding student loans before those loans are in default. They may be able to negotiate a modified payment plan or temporary deferment of the student loan debt before a default occurs.

In October, President Barack Obama announced a plan to make it easier for students to repay their student loans. The new plan allows borrowers to reduce their monthly payments to 10 percent of their monthly discretionary income. Monthly discretionary income is defined as the borrower's gross income minus the state poverty level, based upon family size, divided by 12. Currently, the poverty level for a family of four in the 48 contiguous states is an income at or below $22,350 per year. The plan also allows borrowers to consolidate their federal student loans into a single payment. However, the plan is limited to borrowers who obtained federal student loans in 2008 or later, so it is not available to individuals struggling with older student loan debt.

As always, an ounce of prevention is worth a pound of cure. Students pursuing degrees in licensed health care professions should carefully consider how they intend to finance their education when selecting a program. Defaulting on student loans has severe consequences for health care providers, so think carefully before taking on excessive debt.

Michael L. Smith, JD, RRT is board certified in health law by The Florida Bar and practices at The Health Law Firm in Altamonte Springs, Fla. This article is for general information only and is not a substitute for formal legal advice.