School is out, your graduation party has ended and you are now the owner of a college degree, but at what cost? Recently, student loan debt has surpassed credit card debt as the top source of America’s indebtedness. This figure is likely to surpass a trillion dollars this year. The good news is that student loan debt gave the borrower something valuable in the form of education that should translate to increased future earning potential. The bad news is given the present state of our economy, repaying those loan obligations will be tougher.
Many graduates are realizing their career choice is either not a reality or their pay is substantially lower than they expected. Additionally, a borrower has between 270 – 360 days after graduation to contact their lender. The lender will reply that they have several options: begin making monthly payments, work out a payment plan, apply for a deferment or apply for forbearance of the loan. If these steps are not taken, the college graduate will find her loan entering into default.
When your loan enters default, your loan may be turned over to a collection agency. This will result in additional costs and penalties added to the amount of your loan. If the collection agency is unsuccessful, you may be sued for the amount owing. At this point, additional charges including attorney fees and court costs may be added to the loan amount. If unsuccessful in recovering the amount owed or establishing a repayment plan, the next step taken may be for the collection agency to garnish your wages. The debt collector is entitled in certain circumstances to garnish up to 15% of your paycheck to be paid directly to the debt collector. Additionally, your federal and state income tax refunds may be intercepted and applied to your loan balance and interest owing.
Upon default, the borrower’s credit score will be adversely affected. The credit rating of all three credit reporting agencies (Experian, Trans Union and Equifax) will report the default loan for up to seven years after the default claim is paid. With this default being reported, it will be more difficult to obtain an auto loan, mortgage or even a credit card, and will make the price of those loans more expensive.
There are ways to prevent default from occurring, with the most important step being constant communication with your lender. Now, if a debt collector has unlawfully garnished your wages or file a lawsuit against you containing wrong information, you may seek protective action. You should contact a student loan defense attorney to figure out your rights.
Information gathered from: http://www.finaid.org/loans/default.phtml