Student debt is a major crisis in this country.
As we’ve previously covered, student debt has risen to a new record of $1.5 trillion. As that number continues to rise, it becomes increasingly difficult to figure out how to pay it back!
This crisis has been around, but it accelerated towards the end of the Great Recession. A lot of students were graduating college, only to find the job landscape barren. There were plenty of people with bachelor’s degrees working at fast food and living back home with their parents.
It’s been estimated by the Brookings Institute that nearly 40% of all student loans borrowers will most likely default on their loans. That’s a scary number!
The problem with default on your loans is it can wreck your life at a time when you’re trying to learn how to stand on your two feet. It sets you back significantly in ways you may not realize at the time.
Jeremy Wine, the supervisor of student loan counseling at Take Charge America, says, “People from all walks of life are defaulting on their student loans, affecting them for years to come. Paying student debt must take top priority.”
Here’s a list of 5 things that can happen if you default on your student loans.
1) They can demand payment in full.
Once you graduate, you’ll have options for paying back your loan. It’s typically set to be a monthly payment, but what happens if you miss one? Your account will be considered delinquent. Interest is typically added. It takes about nine months of non-payment to be considered in default.
At that time, your creditor can then decide they want the payment in full. No payments will do…you had your chance! It will be their discretion on if they’re willing to work with you further. Your loan will remain in default until the whole thing is paid off.
The best way to avoid this is to stay in constant communication with your creditor. Let them know if you need to skip a payment, but it’s best to make the loan your biggest priority, as it will hurt you down the line if you don’t.
If you feel lost and need to know what your options are, call Financial Helpers today. Our team of student loan experts are standing by to help you through the process, show you what you can do, and even help you apply for existing government programs before they get closed for good. You can reach us at:
2) Major collection costs added.
If there’s one thing banks are good at, it’s collecting extra fees. If your loan defaults, they’re going to go out of their way to find you and it won’t be pretty. Fees ranging as high as 20-40% can be added to your loan. Making the loan bigger is the last thing you need!
3) Wreck your credit score.
One of the worst things that will happen to you if you go into default is the impact on your credit score. As soon as you are 9 months delinquent, your credit score will reflect that you’re in default, and the score will drop significantly. Payment history is a huge factor in determining your score, so it will remain until the loan is paid off.
4) They’ll come after your paycheck/refund.
A lot of people think they can just graduate college and not pay their loans. It’ll disappear on their credit after 7 years anyway! But what they don’t realize is, the bank is going to come for your money and they’re tied to the government.
If you don’t make regular payments and go into default, say goodbye to your tax refunds. The government will take most of it. If you’re married and you file jointly, they’ll take your spouse’s refund too. They’ll even garnish your paycheck.
The good news is, this is mostly their way to get your attention. The wage garnishment will continue until you call them and set up a real repayment plan.
5) Default will prevent you from being trusted.
Your credit isn’t the only thing that will be harmed by not paying your student loans. Your credit history is pulled for a lot of things you want to do in life. Need to get a new car? Rent an apartment? Get that big job? You might get a big, fat NO if they see you’re in default.
Other professional employers looking to hire you, like doctors, teachers, lawyers, and other service workers can have their license taken away if they’re in default, so trying to find a job in any of those sectors would be extremely tough.
“It’s best to deal with it immediately. I know it’s really challenging because student loan debt is so high and it’s unmanageable for some borrowers, especially when they are placed in a standard repayment plan. But ignoring it and not doing anything about it is one of the worst things to do,” said Wine