Debt is one of those ugly four-letter words that no one wants to deal with. And yet, millions of Americans seem to survive on debt. One of the most common forms is, of course, student debt. How many people could really afford a college education out-of-pocket?
The answer is very few. And that is why so many people are in massive amounts of student loan debt – wondering how to keep from defaulting on student loans. This guide is designed to help answer that question.
What Happens When Defaulting On Student Loans
Defaulting on student loans does more than add the stress of knowing you’re in debt. There are actually some pretty serious consequences. One of these is losing access to some programs that help, such as income-driven repayment plans and even loan forgiveness. While some loan service providers will work with you to get back on track, getting off track in the first place is risky, as you might not get the help you need.
Another potential problem is the actual collection methods. First and foremost, you have to understand that your interest is constantly accruing. And when you’re in default, collection fees are added that can be as high as 25 percent of both the loan principal and the interest.
These fees added to your loan balance can lead to some hefty payments. And if you can’t make them, you risk having your wages, income tax returns, and more garnished. I know someone who dealt with this, and she had an incredibly hard time paying her regular bills for years due to these garnishments.
And, of course, you have to remember that your student loans are reported to the credit bureaus. If you’re not paying and you go into default, it can impact your ability to get a loan for a home, vehicle, or just to get some breathing room to pay your bills. If you do manage to get a loan, you’re likely going to pay high interest rates.