On the road to college, it's easy to develop tunnel vision. Just make it through high school, finish applications, and get into college. Sometimes, in their quest to get to and through college, students decide they will do anything necessary—like borrowing more money than they should to pay their tuition and other expenses.
It's easy to forget that even when college is finished, you aren't quite done with everything school related. Student loans can follow you around for decades. And if you don't treat them responsibly, the repercussions can be serious. Follow these tips on understanding and avoiding student loan default and you can stay in the clear!
What is student loan default?
Default happens when you don't pay back your loan according to the payment schedule you agreed to (also called a promissory note). You set this schedule at the time you first apply for the loan.
How common is student loan default?
Student loan default is a surprisingly huge issue. In the United States alone, more than seven million people are in default on their federal student loans; that doesn’t even include private loans, like the ones from Sallie Mae. And with the college price tag on the rise, it isn’t shocking that education fees continue to pile up for the majority of college graduates.
What are the consequences of defaulting on your student loans?
Loan servicers report all loan defaults to credit bureaus. This can give you a negative credit rating, which can lead to things like higher interest rates and difficulty borrowing additional money (like for a car or house). You may also have trouble signing up for utilities, getting home insurance, getting a cellphone plan, or getting approval to rent an apartment. All in all, loan defaults are a headache for everyone involved, so don't let it happen to you!
How can I avoid defaulting?
Thankfully, there are steps you can take to avoid this student loan default. If you know you can't make a payment, contact either your loan servicer or your college and they will most likely offer some compromise or extension. If you are already going into default, contact the billing agency and you can figure out a solution before your credit rating drops. Handle the situation with maturity, and everything will sort itself out!
For more info and tips, visit the federal student aid website.