How To Avoid a Wrong Turn in Your Student Loan Repayment

Avoiding Another Wrong Turn Now that you’ve asked for directions, you’re better equipped to take action and get yourself back on the road to repayment. By putting it off or just crossing your fingers and hoping for the best, you risk heading down more unfortunate detours and creating even more problems – missed payments, mounting interest expenses, even loan default. To make sure you understand the potential pitfalls of student debt, let’s take a look at some of the consequences. While financial hardship can strike quickly, defaulting on a student loan takes time. Federal loans go into default after 270 days of non-payment. For private loans, the timeframe is shorter: typically 120 days. But no matter how long it takes to default, the negative consequences remain the same. Here’s a rundown of the most common ones. Credit Bureau Reporting Missed payments alone can show up on your credit report and bring down your score. If you go into default, this effect is much more severe. The default will stay on your report for seven years and can affect more than just your credit score. Employers and landlords are just some of the people who might utilize a credit report to evaluate if you are a good fit. Legal Action: Lenders have the right to take legal action and use collection agents to receive payment on unpaid loans. This can go well beyond stern letters and pesky phone calls. You could find yourself in court and in need of a lawyer. Government Action: If you default on a student loan, the federal government may have the right to enforce repayment by garnishing your wages – in other words, taking money directly out of your pay checks. Income tax returns can also be seized until your loan is repaid, and for some occupations, the government can suspend or revoke your professional license if you default on a loan. Other Penalties: Further consequences can include a request for payment in full, refusal of deferment or forbearance, and the addition of fees or collection costs to your balance. Also, if an existing student loan goes into default, you cannot qualify for additional financial aid for school. After Default: Federal Loans Getting your federal student loan out of default can be financially challenging. You’ll need to make a certain number of consecutive payments within 20 days of their respective due dates. You’ll also need to formally apply for what’s called rehabilitation. Only when you’ve cleared these obstacles and gotten yourself properly back on the road to repayment will the default be removed from your credit report. FYI: Private Loans Keep in mind that you may not be taking this trip alone. If someone is a cosigner on your loan, that person can be held responsible for payments that you’re not able to make yourself. Because your loan appears on your cosigner’s credit report, that missed or late payment or default negatively affects their credit rating too. One wrong turn that many people make is simply trying to move their student loan balance over to another creditor. Transferring balances to a credit card or taking out a new personal loan to cover student debt may offer a short-term fix, or at least a break from the collection notices, but you still have the debt, often with a new set of fees and interest added. It’s Using the guidance that’s been presented and knowing the consequences should help you get back on the road to repayment. After all, it’s easier to get where you’re going when you have clear directions.

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