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The Consequences of Student Loans In Default
According to the most recent set of figures from the Department of Education, the number of student loans in default now stands at 225,300 - 6.7% of all federal loans. The consequences are not only catastrophic for the college graduate, they could even damage the institution studied at. Secretary of Education, Arne Duncan, stated that schools with an excessively high student loan default rate could find that they become ineligible for federal student aid programs in the future.
The Causes of Student Loans In Default
In the current economic climate, the likelihood of finding work has been substantially reduced. Without making a decent income, it is hard enough to cover the cost of living, let alone pay for college tuition and expenses. Life is full of surprises so unemployment isn't the only threat facing graduates. There is also the very real threat of poor health, relationship break-ups and genuine money problems caused by unexpected events.
The Effect of Student Loans Default - Non-payment will be reported to the three leading credit reference agencies, including Experian, Equifax and TransUnion. This will make it far more difficult to successfully apply for credit in the future, including mortgages, credit cards and loans.
- A student is not legally able to write-off debt via bankruptcy apart from extremely exceptional circumstances. It would be necessary to prove that you are likely to remain on a very low income for an indefinite period of time. Extreme financial hardship would need to be proved.
- Up to 10% of each monthly salary can be garnished via an earnings attachment.
- The majority of student loans in default will be passed to a debt collection agency. This is likely yo lead to unwelcome creditor contact and potential legal action. The costs will be added to the amount owed.
- Future tax rebates will no longer be received by the individual, they will be deducted from the loan.
- Failing to make student loan debt repayments could be a bar to someone working in certain city, county, state or federal agency positions. It can also lead to the loss of employment.
- All forms of financial aid, deferments and student loan consolidation will no longer be available.
The consequences of student loans in default is very serious. Although non-payment will be registered with credit reference agencies after as little as a single missed payment, the account isn't considered delinquent until 270 days have elapsed. It is important to seek guidance and assistance from a non-profit debt counseling service if you suspect that you are likely to find it difficult to keep-up with repayments.
Sources
Lewin, Tamar. (September 14, 2009). "Student loan default rate rises." The New York Times.
Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.
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