Don’t Let Your Student Loan Default
When it comes to your finances and credit, one of the last things you want to do is default on your student loans. As a result of student loan default, the federal government can garnish up to 15 percent of a borrower’s wages, Social Security disability, and Social Security retirement income without a court order. Unlike other debt, student loans can’t be discharged in bankruptcy. Collection charges of up to 20 percent can be skimmed off the top of payments—enough to turn a 10-year loan into a 19-year loan. If you are unable to make your loan payments, it’s important to take action before you become delinquent.
Loan Forgiveness, Cancellation, or Discharge
In certain situations, you can have your federal student loan forgiven, canceled, or discharged. Reasons for not having to pay your loan back could be disability, the closure of your school, or other circumstances. For example, if you have been or will be unable to work for at least 5 years due to physical or mental impairments, your loan can be forgiven. If, as a parent of a student, either you (the borrower) or your child (the student) dies, the loan can also be forgiven.
Avoid Loan Default from the Start
There is no need to default on a student loan, but many are unaware of the options of deferment, forbearance, or reductions in monthly payments. Borrowers who are unemployed, in the military, or back in school can ask for up to three years of full or partial deferment on repayment of a federal loan. If you’re having a hard time paying off your school debt, you’re not alone. Fifty-one percent of student loans are in deferment, forbearance or belonging to students still in school, according to the Wall Street Journal. Non-profit schools are increasingly developing default-prevention programs to help students out.
If you are at risk for becoming delinquent and defaulting on your federal student loan, do something! For those who have a job but don’t earn enough to cover the monthly payment, there are six options:
- graduated repayment
- extended repayment
- income-based repayment
- income-contingent repayment
- income-sensitive repayment
- pay-as-you-earn repayment
In other words, the federal government will do just about anything to keep borrowers from giving up and walking away completely. If you have a dispute about your loan, it’s best resolved by contacting your loan servicer. Contact a bankruptcy or disability lawyer if necessary.
Fairness for Struggling Students Act
Government loans cannot be discharged in bankruptcy, and in 2005 bankruptcy laws were changed to make it nearly impossible to have private student loan debt discharged as well. Private student loans often have much higher interest rates and no income-based repayment options, unlike government loans. The Fairness for Struggling Students Act of 2013 will make it so privately-issued student loans will once again be dischargeable in bankruptcy–like nearly all other private forms of debt.
