71% of people who graduated from college in 2012 have student loan debt.
Full disclosure, I have quite a lot.
Like, so much.
The average graduate borrowed around $29,000.
The total number of student loans owed in the US today has surpassed 1 trillion dollars
with numbers rising every year.
It’s reasonable to expect that some if not many of those borrowers will have to default
on their debt at some point.
So, what will that look like?
How bad is defaulting on your student loans?
It’s pretty bad.
Most students use federal loans to pay for their education, and the Federal Government
has many ways to get back its money.
The Treasury Offset Program allows the US Department of the Treasury to take your tax
refund and give it directly to the Department of Education to pay down your loan.
They are also legally allowed to garnish up to about 15% your wages, which means taking
money directly out of your paycheck.
Some states also allow private loan companies to seize your state tax refund in the same
way.
And if for some reason the Federal Government or a private company doesn’t think that
any of these previous methods are quick enough, they can sue you for the full amount at any
time.
So, even if you default, the Government and these private companies are still going to
get their money.
And that is just the beginning.
Defaulting on any loan will have a negative effect on your credit score, which will make
it harder for you to take out money in the future, to buy a house or a car, or start
a business.
It may even affect your chances of landing a job or an apartment.
And there is no safety valve that can get you out of student loan debt.
Bankruptcy cannot help you - even after you’ve liquidated all of your assets to resolve your
other debts, you still have to pay your student loans.
So, you really shouldn’t default on your student loans.
If you are unable to pay them but they are not yet in default you have options.
There are scenarios in which you can qualify for loan modification, deferment, or forgiveness.
It’s always good to contact your lender before defaulting on a loan, since working
with you to get their money back is in their best interest, and yours.
With all of that said, if you have to borrow money for school, federal student loans are
the best option, as far as affordability and credibility are concerned.
Just make sure to work with them so that you don’t default.
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