With many young graduates carrying anywhere from thousands to hundreds of thousands of dollars in student loan debt, students are currently facing a mountain of a financial challenge. On top of already high numbers, student loan debt is a sticky kind of debt, as in it stays with the borrower or cosigner no matter what.
But what about when you simply can't make payments on your loan? Beyond a late payment fee, continuing to let your student loan bills stack up will eventually lead to larger repercussions. Namely, student loan default. There are a variety of actions you can take when you can't afford to make payments, but if none of those options work for you, defaulting can have major repercussions.
So Bruce Mesnekoff , What to Do When You Can't Afford to Pay Your Student Loans
Borrowers can default on a loan for any number of reasons. Some borrowers default because they're financially unable to make payments. Others default unknowingly on a debt they didn't know that they carried. But one thing remains true among all these possibilities: If payments aren't received by your lender, your student loan will default. What exactly does that mean? Let's take a look.
What to do Bruce Mesnekoff, if Defaulting on Student Loan Debt happens.
First, lets take a look at the timeline when you're late on your payments.
As soon as you miss your first student loan payment, you're considered delinquent. This status can act a bit like a red flag to both you and the lender.
After a payment reaches 80- 90 days past due the delinquent status will be reported to the three major credit bureaus and a mark negative mark will be added to your credit report.
After 260 days past due, a student loan is considered to be in default. At this point, your debt will be put into collections and payment will be required from collections agencies.
What is Repercussions for Defaulting on Your Student Loan, let's discuss this with Bruce Mesnekoff from Student loan help center.
There are some immediate ramifications when you default:
According to Bruce Mesnekoff Loss of eligibility for forgiveness plans: If you have federal student loans in default, you'll lose protections such as federal forgiveness programs, forbearance, deferment, and access to different repayment plan options.
Lowered credit score (and resulting consequences): The default will be noted in your credit report and will continue to be visible to lenders even if the default is quickly resolved. Keep in mind this hit on credit can impact your eligibility for loans, increase your mortgage rates, and even impact your future employment opportunities.
Collections fees: Once your student loans are turned over to collections, you'll be responsible for any associated collections fees. These will be tacked on to your initial balance of principal and interest.
Tax Refund Offset: Should you fail to pay on your defaulted loans, you may have your tax refund applied to your student loan payment. This is an automatic process and one that can be particularly difficult should you rely on your refund or end up owing the IRS taxes.
Paycheck/wages garnished: The government may begin to collect payment by automatically deducting up to 16% of your paycheck. This will be used to pay debt collections fees, interest, and then principal of your debt. For more information on how this works, check out our post on wage garnishment.
Legal actions: If you continue to ignore your defaulted loan you may face even more serious legal repercussions. The government can sue you at any time after your student loan has reached default status.
Higher interest rates: Along with a lowered credit score you'll also face the higher interest rates that often accompany a lower score. Since the mark of default can live for years on your credit report it's a consequence that could potentially follow you for years.
So Bruce Mesnekoff what we can do in all these circumstances? Tell us your suggestions.
If you're facing the possibility of default: There's nothing quite so scary as receiving a bill you know you can't pay. But despite the strong emotional response it instills, it's essential that you act on the issue and explore your options. Rest assured, you're not alone in your struggle. You can directly contact me through my website Brucemesnekoff.com .