The
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Education & Skills
Section
I / Section
II / Section
III / Section
IV / Section
V
Consequences of Defaulting on Student Loans (Think about these before taking out a loan.)
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You may be denied eligibility for future financial aid at the University of your choice or other institutions.
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Loan delinquencies negatively impact your credit record and are reported to national credit bureaus. Your eligibility for future credit will result in denial of credit cards, car loans, home mortgages or other types of loans.
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You will incur additional costs through collection agency fees, legal fees, and late charges.
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You may lose certain privileges on campus such as computer use or recreational facilities.
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Encumbrances are placed on academic records. Requests for transcripts or re-entry into University may be denied until the encumbrance is cleared.
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A co-signer on your loan will be held financially liable if the loan becomes delinquent.
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You may be harassed by telephone calls at home or work or receive threatening letters.
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Your loan may be assigned to a collection agency, you may be sued in court, and your wages could be garnished from your paycheck. You could be required to pay the outstanding balance in full along with being required to pay collection agency fees, court costs, and attorney fees.
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Remaining balance may become due and payable immediately. When this is consolidated with other debts, it will become a road to disaster.
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You can lose eligibility for deferments on federal loans. You can lose your rights to receive partial cancellation of your loan for service performed in various employment situations.
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An institution has the option of calling the full balance of a loan immediately due and payable. A collection agency can require a contingency fee for this.
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The Department of Education can place a lien on your federal tax refunds until the loan is paid in full. You may be denied other forms of federal financial assistance.
Process you would follow if you were unable to make a loan payment on time:
Contact your lender(s) and explain your situation. Failure to communicate with your lenders puts you at risk of being declared in default if you do not make payments on time. Your lender will require full financial disclosure from you, and you may be granted a hardship deferment. Under the forbearance (hardship) deferment, you may be allowed to postpone payments or make lower payments. Work with a counselor at a non-profit consumer credit counseling agency. See contact information in Credit Step.
Although you can defer the beginning of payments on your college loan until six months after leaving school, the interest begins when the loan is taken for unsubsidized loans and all will have to be paid. The ability to defer payments may be a curse rather than a blessing. Therefore, the sooner payments begin, the lower the interest. On subsidized loans for which the government pays part of the interest, you start accruing interest when you begin payments. For tracking information about your loans and their type, call 800-433-3243. The student default hotline is 800-621-3115.
See http://www.studentaid.org for important loans, grants, scams, etc.
Your greatest investment in life is your education. A degree cannot be stolen, lost, or destroyed as material investments can. In today's society, education is required. Although you have to borrow for college, the monthly payback can be perceived as more valuable than buying a new car with comparable monthly payments. Plan to reduce other life expenses rather college affordability for the enrichment and empowerment that a degree can provide.
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