I read an article yesterday about how 13% of student loan borrowers don’t even consider their student loans as debt. Plus, there are entire forums on Reddit devoted to intentional student loan defaults. Freak? Well, if that didn’t surprise you, it probably doesn’t surprise you either that 13% of all student loan debt defaults. That means people don’t pay their student loans.
That works out to 7 million student loans at an average of $14,000 each.
So what happens if you don’t pay your student loans? Honestly, not paying your student loans is one of the worst financial moves you could ever make. And while you’re not going to a debtor prison, you’re probably in an emotional and financial prison.
Let’s break down the process of what happens if I don’t pay my student loans.
If you’re not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you create a solid financial plan for your student debt. View the Student Loan Planner here.
What happens if you stop paying your student loan?
Your loan technically goes into “default” after you have made no payment on the loan for 270 days. For a typical loan, you have an invoice date and then a 28-day grace period to make the payment — the true due date. For example, if your billing date is 1/31, you have until 27/2 to make your monthly payment in full. If you do not make your payment, your loan will go into delinquent status. This also happens if you do not pay the full amount.
Once you are past due on your loan, your lender will try to contact you several times. You will usually receive a 30-day reminder after the due date, a 60-day reminder after the due date, and a 90-day reminder after the due date. You will also likely receive several calls from your lender to check in and see if you intend to pay.
Even if you make partial payments, until you rebalance your total student loan account, you are still considered delinquent.
After being 90 days late with your payment, your lender will typically report the overdue payment to the credit bureaus and give you a final reminder to make the payment. After 270 days of no payment, your loan is in default. At this point, it is usually handed over to one of the many student loan collection agencies.
If you still don’t pay, your school, the financial institution that issued or owns your loan, your loan guarantor, and the federal government can all take action to recover the money you owe on your student loan.
Consequences of Defaulting Your Student Loan
If you default on your student debt, the consequences are not good. Besides ruining your credit score, there are many ways your lender will try to collect the money.
If you are in default, the following will happen:
The full loan balance and any accrued interest will become due immediately You will no longer be eligible for certain programs, such as student loan forgiveness, forbearance, deferral and change of repayment plans You will no longer be eligible for additional financial aid Your loan will be reported to the credit bureaus as default and it will hurt your credit score (if your loan is already in default, you can check your credit score here) You may be subject to wage garnishment to repay the debt (if you are a federal employee, you may be subject to are subject to a maximum of 15% garnishment due to federal salary compensation) Your lender may take legal action against you Your lender may place a lien on any property you own
With all of these things, your student debt could end up costing you a job, a home, and more.
Better options if you can’t pay
If you are having trouble paying your student loans, contact your lender immediately. There are many options that can help you, all of which are better than simply not paying your student loans.
First, you should look into changing your repayment plan to something more affordable. You can switch to IBR or PAYE, which are income-based plans that can bring your payment down to $0 if you qualify.
Second, if you have a temporary hardship, you can ask for your loans to be deferred or deferred. This gives you some time to regroup without having to pay. Keep in mind that interest will still accrue, but you will not have to pay.
Finally, check your eligibility for a student loan forgiveness program. If you don’t qualify for a traditional student loan forgiveness program, you can switch your repayment plans to one that includes student loan forgiveness.
With federal student loans, there really is no reason why you should default. If you can’t pay your student debt, there are options to help you. Private loans are a bit more difficult, but even then there are options.
A reminder about your student debt
It’s important to remember that even if you don’t pay your student loans, the government or your lender will always get their money for your loan. They can seize your wages and taxes to ensure that they are repaid.
According to the Department of Education’s 2013 budget, after the federal government pays debt collectors to recover the loan, the government is likely to get back about 96% of what the borrower owes. You see – so even if you don’t repay your loan, AFTER paying a collection agency, the government still gets back 96% of what they owed. You can’t escape your student loans, and not paying is not the solution.
Have you ever considered canceling your student loans? What steps have you taken?
This post What happens if I don’t pay my student loans?
was original published at “https://thecollegeinvestor.com/14926/happens-dont-pay-student-loans/”
