Loan default


Q. I’ve decided that it would be financially advantageous for me to default on my current TSP loan, in order to pay off other, more pressing and expensive debts. My loan payment is currently deducted automatically from my biweekly civil-service paycheck by the Treasury Department. So I have three questions: 1) Is there a mechanism by which I can have Treasury stop making the loan payment/deduction? 2) If so, then if I do so as of Oct. 15, will I be liable for the taxes on the deemed disbursement in this tax year, or in the next tax year? (I ask because, as if understand it, the loan status wouldn’t be evaluated as overdue until the end of the quarter, i.e. Dec. 31, and would thus not be declared to be in default until sometime in 2015.) 3) If I default, I understand that I won’t be able to request another TSP loan for one year afterward. But does defaulting otherwise present any obstacles should I decide to seek another TSP loan at a future date?

A. You cannot suspend your loan payments. When you agree to the loan terms, you agree to repay the loan in full, and you authorize payroll deductions. If you are experiencing financial difficulties, you may be able to reamortize your loan to reduce the amount of each payment, but you cannot suspend or stop your loan payments.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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