You default and they stop adding any money to your debt? That doesn't sound right. If I tried that I'm sure they'd be adding some 30% late fee every month.
This is basically a form of strategic default. Because the debtor hasn't renegotiated their loan(deferred) and has stopped paying for their loan, they defaulted(breached contract, failed to meet obligations, w/e).
Because there's no contract, they don't charge interest, but they do hit your credit score and go after the money other ways. In the USA your credit score determines your eligibility for future lines of credit, loans, etc....
In addition defaulting on a loan allows the debtor to garnish wages, tax refunds, etc...
It is EXTREMELY RARE that a situation would arise in which the cost of interest on your loan would exceed the cost of a defaulted loan on your credit report.
"Deadbeat" American student loan debtor here. During the economic meltdown, I defaulted on my private student loans in 2009. The defaulted loans were picked up by two different debt collectors. One of them, Sunrise Credit Services, is charging me interest as I pay down the loans. The other debt collector, Williams and Fudge, charges me no interest.
How does it work that you stay in default while paying on the loans? Doesn't the loan become current at some point thus you're no longer defaulted? Or is that the point, the default comes from not paying the contractual payment of, let's say, $700/month and you're sending "only" $350/month?
(Casting no judgment; I have mountains of student loans that I'm managing to pay every month so I sympathize with how you got into that position.)
I guess with the no interest company that they make enough given the discount they purchase them for and the no additional interest helps get more of them paid back.
These collection agencies purchased the loan for a fraction of their value (if paid according to the terms).
I'm guessing each collection agency has their own strategy for collecting on the loans. One of them says "we'll end up with more in the end if we don't charge interest" and the other said "we're owed interest, let's collect it".
I would imagine the first strategy (no interest) has the benefit that the person making payments can actually watch the debt decrease over time. It might make them more interested in actually paying the whole thing back.
If a collection agency says "you owe us $100K and next year it'll be $110K" you might just not bother paying anything since you'll never be able to get ahead of the interest.
This is basically a form of strategic default. Because the debtor hasn't renegotiated their loan(deferred) and has stopped paying for their loan, they defaulted(breached contract, failed to meet obligations, w/e).
Because there's no contract, they don't charge interest, but they do hit your credit score and go after the money other ways. In the USA your credit score determines your eligibility for future lines of credit, loans, etc....
In addition defaulting on a loan allows the debtor to garnish wages, tax refunds, etc...
It is EXTREMELY RARE that a situation would arise in which the cost of interest on your loan would exceed the cost of a defaulted loan on your credit report.