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DEFAULTING ON YOUR STUDENT LOANS — THE CONSEQUENCES

Student loans have been a big topic for me lately, mainly because I see so many people with so much student loan debt. Recently, the amount of credit card debt outstanding in the nation was surpassed by the amount of student loan debt. According to  recent report, roughly 20 million people attend college each year, and of that 20 million, 12 million borrow money to help pay for tuition. Current estimates show that the total amount of outstanding student loan debt is somewhere between $902 Billion and $1 Trillion  — Trillion, with a T. Perhaps even more frightening are the following statistics:

1. Only 37% of federal student loan borrowers between 2004 and 2009 managed to make timely payments.

2. Two out of every five student loan borrowers are delinquent at some point in the first five years after entering repayment.

3. The current student loan default rate is 14.7%, and for every student loan that goes into default, two others become delinquent.

I am pretty sure I’ve convinced you that this is a massive problem. What I am really hoping to do is convince you to do something about it before you go into default on your student loans. So, let’s start with the basics, what is default? Well, that depends on whether you have federal or private student loans. Let’s talk about private student loans first.

Private student loans become defaulted as soon as you miss one payment. No grace periods, no 30, 60, or 90 day late notices. If you miss just one payment, you are technically in default. As soon as you are in default on a private loan, your lender could accelerate the amount due and could file a lawsuit. Now, most private lenders don’t do that right away, but they could.

Federal loans are different than private in how a loan goes into default. Once your federal loan enter repayment status you have to start making payments. If you miss payments, you will not be in default until 270 days after the first payment was due. If you don’t know how long it has been since you made a payment, call your lender, they can tell you exactly.

So now you know how loans go into default, but what does it really mean? Well, for private loans, not much. They can sue you, and they might, but there isn’t much more that they can do except bother you and harm your credit. Now federal loans are a different story. Once you go into default these are just some of the actions they can take:

1. COLLECTION FEES: Once your loan goes into default, a debt collector who has contracted with the department of education is assigned the file. This collector gets to automatically tack on a 25% collection fee to the outstanding balance of your loan. So let’s say you had $100,000 in outstanding student loans, once you default, you now owe $125,000! Now, you can get rid of this fee by curing your default, but it is replaced by an 18.5% cure fee. So instead of $125,000 you now owe $118,500. Better than $125,000, but still a heavy price to pay.

2. ADMINISTRATIVE WAGE GARNISHMENT: The department of education can garnish your wages without having to file a lawsuit. All they need to do is give you notice that they intend to garnish, and thirty days later they can begin taking up to 15% of your wages.

3. TAX REFUND INTERCEPT: The IRS will send any refund you may receive straight to the department of education, you get nothing.

4. SOCIAL SECURITY OFFSET: Not even Grandma’s social security check is safe.

5. LOSS OF SECURITY CLEARANCE: If you are a government employee, or a government contractor, you could lose your security clearance, which could then mean you lose your job.

6. PUBLIC SHAMING: Doctors who have defaulted on certain loans have the news that they defaulted published on the internet by the department of education. And, their ability to participate in Medicaid programs could be jeopardized. http://bhpr.hrsa.gov/scholarshipsloans/heal/defaulters/index.html

Terrified yet? Don’t be. There is no good reason you should ever go into default on a student loan. We can help you to avoid default by getting you in a manageable repayment plan, your payment could even be $0.00. If you are already in default, call us immediately. We can help you get out of default and obtain a manageable repayment. The worst thing you could possibly do is ignore the problem. Student loans are scary, but manageable with the right planning. So don’t default, call us instead.

For additional information on this topic visit our Student Loan Help services.