Paying for College
Previously on this blog we discussed the best ways to cover the astronomical costs of higher education, such as setting up a savings account, securing a scholarship or grant, or borrowing from your parents. But, for many students none of these options are available. According to CNN, 40 million Americans are carrying at least one student loan. If you have a student loan, you are among a very large group of borrowers and perhaps you, like them, are struggling now to repay your loan.
Student Loan Delinquency
A student loan can seem like the saving grace to help you access that college education that you would not have otherwise been able to afford. But student loans must be repaid, and this is where problems can begin. According to the US Department of Education, approximately 11.3% of student loans were delinquent last year. Delinquency is defined as having missed one payment. It can be a challenge to make your student loan payments when facing competing financial obligations, such as making your mortgage or rent. You might be tempted to put off the student loan payment, thinking that it can wait, but missing your student loan payment has dire consequences.
Student Loan Default
If 270 days have passed since you made a payment, your student loan will be classified as “default” and sent to a collections agency. After it is sent to a collections agency, you are due to pay the entire balance in full. Other consequences include the following:
- Your credit rating will plummet. Student loan defaults are taken more seriously than consumer loan defaults, and you will face a difficult time when you apply for credit cards, a mortgage, an auto loan or other personal financing.
- You forfeit your chances of working out a repayment plan with the government.
- Because it is a federal loan, you open yourself to many actions that private lenders cannot take, such as seizing tax refunds that may be due to you and garnishing your wages—the government can take as much as 15% from your income.
It is highly advisable to do whatever you can to keep current with your student loan payments, and not miss more than one or two. Here are some quick tips for how to stay on track:
- Make your student loan payments a priority. Examine your monthly expenses, identify where you can reduce expenditures, set a budget and stick to it.
- Credit card payments can consume an enormous amount of your income. Eliminate or drastically reduce the amount of charges you place on your credit cards.
What Can You Do If You Are Not Making Your Student Loan Payments?
If you see that making the payment is going to be a problem, immediately contact the government to take advantage of whatever relief might be available to you. For instance, you may be eligible for an Income-Based Repayment plan, which caps your monthly payment based on your income and other factors. If you are employed in the public sector, you may be eligible for a Public Service Loan Forgiveness program, which helps bring down the total amount of your student loan. If you have more than one student loan, ask for a federal consolidation loan. You may also be eligible for a deferment—pursue all of your options.
The point is to take steps immediately, as soon as you see you are struggling to make the payments. Doing nothing will only compound your problems. There is no statute of limitations on student loan debt and you could find yourself facing the consequences of student loan default for the rest of your life.