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Consequences Of Not Paying Student Loans
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Article on Consequences Of Not Paying Student Loans
Nearly all students today have student loans and since they do not have to be repaid until after graduation, many students do not give student loans a second thought during school. What happens if repayment is not possible or if the student simply neglects their responsibilities? The consequences of not paying student loans can be life altering, but are thankfully preventable.
Default
Students have 6 to 9 months to start repaying student loans after graduation. After that, payments are expected timely. Depending on the loan payment agreement, a default will not occur until after the loan is 270 to 360 days old. When this occurs, the full amount of the loan is due immediately. Eligibility for deferments and forbearances immediately stops. Nevertheless, there are ways to get out of default before the consequences of not paying student loans become serious.
Getting Out of Default
It is better to get out of default in the early stages. But how? Just call the lender. They can make a payment plan that suits the needs of virtually everyone. Defaults are not reported for 90 days so if the call is made and payments have been made up so that the loan is showing less than 270 days overdue before that 90-day window closes, the default will not even be registered. It is possible to consolidate a loan and there are various lenders that won´t charge a fee to do this; however there are many lenders that will use this opportunity to make a little profit on the loan which could create problems later on.
Still not paying?
The programs just discussed are the best way to get a loan out of default. However, if none of these actions is taken and the loans are still not paid, the consequences of not paying student loans become dire. The government will get its money and will take severe action to take it. Do not count on getting a tax refund until the loan is repaid or taken out of default status. Wages are garnished at 15% whether the graduate works for a private employer or the government. As a last resort, the government will sue to get the owed funds. One thing many do not know is that student loans cannot be discharged with a bankruptcy.
Long Term Effects of Default
Student loans are a great way to earn a good credit rating but can also be the maker of horrible credit. One of the consequences of not paying student loans is the notification to credit bureaus. If the loan is in collection outside of the government, collection costs will continue to mount until the loan is taken out of default status. The default will stay on a credit report for seven years after the loan is taken out of default also. Defaulting on a loan also makes the graduate ineligible for many other federal loans, such as FHA housing loans and other federal benefit programs such as Social Security.
With the current economy, many student loan borrowers are having trouble repaying. The consequences of default can be dire, and every borrower should work with their lender diligently to avoid it. Avoiding default is not only preferred, but also necessary for future financial success.
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