You still remember how easy it was to acquire a student loan. Don’t you? It’s not at all astonishing to learn that you weren’t aware of what you were throwing yourself into. How old were you when your loan was disbursed to you? 18, 19, or 20? It’s obvious that you didn’t comprehend then, what it is like to be laden with debts. You were too careless along with those freaky words like structured loans, subsidized loans, federal loans, etc. I understand that this unawareness caused you to be a favourite prey of institutions granting student loans.
However, you have spent many years with this lack of knowledge and it’s high time that you understand what the real consequences of not repaying the loan are. Didn’t you enjoy spending their money? You did, right? I hope not repaying this loan was as simple as not repaying any mortgages. But it’s not. The only two reasons when the loan provider forgives you is when you die or when you are critically disabled.
Oops! Pretty scary reasons. Aren’t they? Should be. The government is lending you money to study with ease and facilities. You misuse the funds and you say you are scared of these reasons. Although failing to repay student’s loan is not considered as an official crime, the government agencies and loan providers have their methods to get back their funds.
So, what is it that can be done to avoid serious consequences?
When these loans are disbursed to students, the rate of interest generally considered is the prevailing rate during that time. For students, it is usually fixed rate for a longer time. If you borrow from a private lender, the rate is high. A government agency charges lower interest rate. Students can acquire these kinds of loans every semester. Hence, you will find several students with number of loans at varying interest rates. Consolidation is nothing but merging all the loans and having a single interest rate. However, a student must request consolidation to each loan provider.
Refinancing means you have to pay lesser amount each month for a longer tenure. Interest rates are generally lower than the previous one. These rates can be negotiated based on how good your credit history is. The lowered interest rate provided by federal agencies varies greatly from the rate by private lenders.
Postponement, also known as Deferment, it is generally approved due to various reasons. Under this grant, you can delay the repayment of loan amount for certain period. However, it is granted to students with certain disability undergoing treatment, unemployed for a longer time, or having economic adversity. Generally, no interest is charged when the loan is provided by federal agencies. But, if it is provided by a private lender, the interest keeps on adding to the principal amount, thus resulting in even bigger loan.
Students that are not granted deferment can ask for Forbearance. Here, the repayment of the loan is delayed or decreased with accumulating interest. As forbearance is a grant taken willingly by the defaulter, interest cannot be waived off. Although it gives you a temporary relief from payments, it keeps mounting up the original amount. Forbearance is generally granted after a gap of 12 months.
Federal agencies are quite helpful when it comes to difficulty in repayment. Private lenders, on the other hand, are very severe. There are many options like repayment based on your income, settlement amount, repayment varying with income, and many others. If you plan to opt for forbearance and postponement, it’s always wise to talk things out with them in person. If you have a good credit history, you are sure to get a decrement in your repayment amount. If your credit rating seems quite ruined, forget about all the above options.
You don’t want to pay anything? Want to file a bankruptcy?
Don’t even think about it. Along with ruining your credit rating forever, you are also inviting serious perils. Like what?
I can understand if your lack of knowledge keeps you unaware about financial jargons like subsidized loans andPay Your Student Loan federal loans. Its pretty complex to understand in an hour. But I can surely help you with the meaning of collections. Just miss some payments of your student’s loan and that’s it. The collection agents are everywhere around you. When the lender notices you irregularity of repayment, your case is sent to collections. These are agencies with people expert in collecting money for defaulters. It’s a kind of formal extortion, only they are asking for their own money. They call you and send repeated written notices to you. If you are unable to reply to them, they can start contacting your parents as well. If you were a minor when you accepted the loan and your form mentions that your parents would be responsible for non-payment, they can even harass your parents. The costs incurred by them to recollect money from you is also to be paid by you, legally. Wow! An unpaid loan plus collection harassment plus pay for the expenses incurred by them on harassment.
Generally used by private lenders, in lawsuits, students are taken to court to pay the full unpaid amount without a settlement.
I know you think fooling these agencies is fun and everyone will forget about this over a period of time. Yes, everyone but your credit rating. Nowadays, almost every company conducts a background check and a credit check even after they have short-listed you for the job. They don’t consider a not-so-good credit rating; you have something much better than that: a defaulter on student’s loan.
Increased Interest rates
You can forget about repayment of your student loan, but the agencies will not. Suddenly, after several months or years, you realize that the amount payable now is much higher as the interest rate doubled, charged many times with late fees and penalties. First, you were trying to dodge smaller amount and smaller consequences, not face the bigger version.
Does it really affect your credit history, if you don’t repay your loan? Here is how I can simply explain. 1 month past due on your loan affects your credit miserably. Just try to calculate the effect of not paying at all. Forget about any good job or admission anywhere for the rest of your life. If you are a minor, rejoice because your co-signer’s credit would be affected equally. You have now ruined others carrier along with yours.
Any more consequences? Yes, Wage Garnishments.
This is probably the most distinguishing consequences of defaulting student’s loan. The lenders are permitted to garnish your hard earned wages if you fail to repay their loan. To escape this, students find it easy to seek shelter and earn in some other countries. Ok. Pretty good method. First, you denied payment, now you started fleeing. However, if you run away from this country, do not dare to step here again as the unpaid balance accumulated because of interest, penalties and sundry fees would be substantially high. Wage garnishment would continue if you come here again.