If you’re a current or former college student, the chances are very likely that you have some amount of student loan debt.
It happens to many of us and it’s really nothing to be ashamed of. Though there are ways to find free money for college and definitely ways to maximize your FASFA, sometimes taking out a student loan is unavoidable. Oftentimes, student loan debt becomes the first source of debt and we may struggle with managing student loans.
But, just because we’re struggling with student loans doesn’t mean that you shouldn’t pay them. In fact, that’s the last thing that you want to do. Here’s some advice about defaulting on student loans and why this should be avoided at all costs.
What Does It Mean to Default on Student Loans?
Miss a payment or make a payment late and it’s a delinquency.
Failure to make a payment on your student loans for nine months and it’s considered a default. It essentially means you’ve stopped making payments on your student loan. Because a loan is an agreement between you and a financial institution, you have an obligation to uphold your end of the bargain.
Stop making payments and you’ve broken your agreement.
There are some unfortunate consequences.
Generally, you will receive a notice from your state’s department of education notifying you of the default. You’ll also be responsible for any fees incurred while they’re collecting this debt from you.
Simple Steps to Avoid Defaulting on Your Student Loans
There are several ways that you can make to prevent the onset of student loan default. It is just somehow necessary for you to place your interest and efforts on preventing it. Here are the possible ways that you can consider:
1. Make sure that you understand your loan options as well as the related responsibilities prior to taking out a student loan.
2. Simply make your payments on time.
3. If possible, inform your lender or service provider promptly about any of the possible adjustments that may affect the repayment of your student loan. In case you move or change your address, let them know. Also, make sure that they know about the name changes, which are very possible because of marriage; graduation or termination of studies; leaves of absence as well as transfers to another institution.
4. If certain financial difficulties are encountered, try to consider applying for a deferment or forbearance on your loans. Many experts often suggest that it is much better to defer your payments than to go in to default status. Along with this, ask your lender or service provider about the available options while you are still making payments, before you enter the default status of your loan. Always note that after you default, you won’t be able to get a deferment or forbearance anymore.
5. If for instance you are having trouble making your payments, try to contact your lender as they may be able to suggest an alternate repayment options for you. Some of the possible options include graduated repayment, income sensitive repayment, as well as income contingent repayment. Also note that the types of available repayment options currently depend on whether the student loan was issued under the FFELP or FDSLP or Direct student loan programs.
6. A student loan consolidation can be considered as another way for preventing student loan default. Combine all of your educational loans into one big loan as this gives you the chance to send your payments to just one lender. What’s more, you may be able to extend the term of the loan in order to lessen the size of your monthly payments.
7. Simply keep records regarding your student loans. If possible, try to back up copies of all your letters, canceled checks, promissory notes, disbursement notices, and some other necessary forms in a file folder.
What Happens If You Do Default?
* You will no longer receive a tax refund – Generally, this is the first step. The department of state will contact the IRS and you will no longer receive a tax refund. Any money you might get will go straight to paying off your debt.
This will continue until your debt is paid off or you’ve negotiated a repayment plan.
* You may have your paycheck garnished – The second step will be for the financial institution to garnish your paycheck. And while many agencies have to go to court to get a garnishment, the department of education does not. They can take up to fifteen percent of your disposable income.
* You can have your social security benefits reduced.
* They can sue you.
* Finally, they can also take away any professional licenses you obtained.
In short, there really is no way to not pay back your student loan. One way or another, they will get their money. Your best bet is to renegotiate a payment plan that fits your current needs. It’s much better than defaulting which can affect your credit score, your professional standing and your reputation.
How Defaulting On Student Loans Affects Your Credit
Defaulted student loans that show up on your credit report may stop any bank or other lending institution from extending a loan to you for a home, or for any other reason you may need to borrow money.
If you don’t get these loans fixed and up to date, they will follow you around forever. Even worse, there are some companies that will buy defaulted student loans, and they will be very persistent in trying to get you to pay up. They buy the loan as a risk, hoping to make a profit from your misfortune, or your inability to handle money.
These people are as diligent as bill collectors, and won’t leave you much peace.
Steps to Take After Defaulting
If you’re in danger of defaulting on a student loan, investigate your repayment options. You may be able to consolidate or negotiate a new repayment plan.
Explore all possible options that you can to avoid defaulting on a student loan. Even when times may seem incredibly difficult and you see no feasible way to work it into your get out of debt budget; stop and think. Examine everything carefully and get creative with your finances. You never know where you may find an unexpected source of extra income.
What advice would you offer to avoid defaulting on student loans?