Every year, millions of Americans rush to college. It’s part of the American dream. We’ve been told since we were little. If you want to make good money, you need a degree. So, that’s what we do. If someone can’t pay for their schooling, they take out student loans. It’s not a big deal at the time. They sign the dotted line and figure they’ll deal with it later.
Then, later comes. The student graduates, and before they even get a chance to breathe, the bills start coming in. It’s time to pay back your lenders. But, what happens when the economy isn’t doing too well and jobs aren’t aplenty? Is the lender going to wait for you to find gainful employment?
Maybe. There are forbearances that allow you to take some time, but while you’re doing that, interest still accumulates. But many student loan borrowers shrug their shoulders. They think they will be able to tackle the problem later on. That’s when the nightmare turns into a catastrophe.
When Student Loans Become a Burden
Student loans aren’t something that should be taken lightly. There’s a reason why the debt has reached an epidemic level of $1.5 trillion. Actually, there are numerous reasons. Predatory lending, fake claims by colleges, economic hardships, and years of taking out increasing amounts of loans pile on to the problem.
For many who have no options, they have nowhere to turn. They decide that the default is okay for a few years until their situation turns around. If that sounds like you, there are things you should be aware of. You have other options. Here are several misconceptions and consequences of allowing your student loans to default:
Misconception #1: Your Loan Will Just Go Away
There are a lot of people out there who believe if they just stop paying their student loans, they’ll magically go away. The lenders will stop hunting them down, the interest will stop flowing, and life will get back to normal. This is not true!
According to Teri Williams, who is the President of OneUnited Bank, student loans “cannot be discharged or ‘erased’ without payment in full.” There is no bankruptcy option that will wipe it out. With the exception of a fraudulent case or other parameters under the law, your loan will follow you everywhere you go.
Some of those parameters include student loan forgiveness, but that requires qualifying conditions that must be strictly met. There were plenty of students who felt they would qualify, but they didn’t have the right type of loan. And sometimes, the government changes the rules, depending on who is in power.
Misconception #2: Lenders Won’t Work with You
Say what you want about lenders and debt collectors. Many can be downright mean and will use every tactic in the book to get their money. But as long as you’re open, honest, and communicate with them, they will often work with you. They want their money and if you reach out to them, the more options they have for helping you.
Rachel Rabinovich, a financial planner with Society of Grownups, believes debtors want to help. “They are there to help you and the earlier you reach out, the more options they’ll have,” she says. “They don’t want to deal with the paperwork and mess any more than you do.”
http://financialhelpers.com/what-does-it-mean-to-have-excessive-student-loan-debt/
At the end of the day, you borrowed the money, and no matter what situation you’re in, you have to pay it back. Contacting your lender and working out a deal will bode much better for you than ignoring the problem and letting it go into default. They will help you go over repayment plans and more.
“Most lenders prefer to modify terms to make it possible for you to make regular monthly payments rather than taking you to court to obtain a judgment,” said Rabinovich.
Misconception #3: You Can Just Declare Bankruptcy
This topic was briefly covered earlier, but there are no bankruptcy protections against student loans. This is considered the nuclear route for so many people. They turn the key and have all their debts obliterated. With student loans, that’s not the case. The odds of a judge forgiving those is nearly zero.
So, even if you’re declaring bankruptcy, you will still have your loans haunting you.
The big question now is: what happens if you default? Well, the consequences vary. It can extremely complicate your life. Kevin O’Leary of Shark Tank said its best for young people to make paying off their student loans a priority before anything else.
The reason is, if you have a high amount of debt, it can impact your credit score negatively. That makes it that much harder to secure a loan for necessities, like a new car, to get a new credit card, and to even secure a mortgage. Life only gets more expensive once a person starts to settle down, get married, and have children.
“Defaulting on federal loans could make it impossible for you to participate in other federal loan programs,” Rabinovich adds. “For example, defaulting on a federal loan would likely disqualify you from receiving an FHA Loan (Federal Housing Administration). FHA Loans are popular with first-time homebuyers due to their minimal down payment requirements.”
