Default rates are up 70% in the past few years. Currently the problem only amounts to $37 billion a year, but is a bad scenario for those raiding their nest egg.
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I’m wondering how many people used their 401(k) loans as equity to buy a house (you can borrow the lesser of 50% or $50k), and then couldn’t meet their budget for repayment. This will equal a large tax bill for these people – it’s a 10% penalty plus federal and state income taxes on the amount you borrowed. If they’re already having trouble making ends meet, then it could be crushing.