Avoid Drowning in Student Loan Default
When you’re in college you have so many expenses that scholarships and grants often do not cover. Many college students try to work their way through college and find that the hours put in greatly strains their college focus, giving them poorer grades and less of the education that they are paying for.
Often, student loans are unavoidable. While these loans seem very attractive when your bills are due and you are in the middle of school, they can be devastating if you graduate and do not find employment or lose your job. These loans never go away, so it is important to understand the ramifications of a student loan default and how you can avoid falling into this trap.
Student loan defaults are on a steady climb. The NY Times reported in 2011 that student loan defaults had increased to 15% in the first two years of the loan. This number had risen from around 11% in the year before. Many blame the poor economy and it seems that there is a direct correlation between the student loan default rate and the unemployment rate.
Student loan default is a serious pitfall that many borrowers find themselves in. It should be avoided at all costs, because of the devastating penalties that can occur. Once a borrower goes into default, the wheels of recovery start turning and the borrower is often left with staggering costs that are even more unaffordable than the original loan.
Repercussions of default include:
1. Normally a 25% fee is tacked onto the loan.
2. If you are working, your wages will be garnished to about 15% of your net income.
3. You will lose your rights to apply for any other federal student loans.
4. Your tax refunds can be withheld every single year until the debt is paid.
5. Your property can acquire liens.
6. Collection agencies will begin pursuit of you.
7. Eventually, if the debt is not paid, there will be legal proceedings brought against you.
Student loan default does not have a statute of limitations. It will never go away, no matter how long you try to avoid it. A default will follow you for the rest of your life until it is paid off. Along with the devastating measure above, your credit can be instantly ruined, preventing you from getting any other loans, a job, and even housing.
There are ways that you can avoid defaulting. It is important to stay in touch with your lender at all times. Avoiding their calls and letters will only send you closer and closer to default. Make sure that you make your monthly payments on time each month. If you find that you are having financial difficulty, there are options available such as income-based payments and deferments that can help you to put off payments for a specified time due to unemployment, illness, or other determining factors. Student loan debt never dies, so before you sign on that dotted line, be sure that you understand what you are getting into.
Jen Scott – Degree Jungle Contributor