The default of any form of student loan, private or federal, is a nightmare. But when it happens with federal loans, Uncle Sam is merciless. Currently there are 36 million Americans with federal student loans, and a growing number of these borrowers are struggling or unable to pay their monthly balance. It is not surprising that the Ministry of Education reported that the number of defaults has risen at an alarming rate in recent years.
Many borrowers find it difficult to keep track of payments for the following reasons:
- High unemployment, especially under recent gradients
- A dwindling economy
- Federal (and private) student loans are almost impossible to dismiss in bankruptcy
Consequences of defaulting on your student loans
When somebody defaults on their federal loans, life quickly becomes quite difficult and more obstacles are imposed to achieve financial stability. How fast can a person be standard? Most federal loans go from being delinquent to default status after nine months of no payments.
1. Your wages can be treated without a court order
The federal government can wage your wages without a court order, and the amount they can take is substantial, especially for most Americans who are already struggling to make ends meet. According to the National Consumer Law Center student loan website for student loans, the government or a guarantee agency can take a total of 15% of the available salary.
Although this can be done without a court order, the borrower has the ability to challenge the seizure. If they plan to decorate your wages, you will be notified before they take action. If you take the right steps in time, seizure can be stopped – although they cannot be stopped at all stages. However, a borrower has one chance to rehabilitate his loans. These payments must be voluntary and paid on time for 9 out of 10 consecutive months.
It is important to request a hearing before the seizure begins. However, if that is not possible, you can still challenge them after the process has begun.
2. Your social security, invalidity checks and tax refunds are reasonable game
Just as they can decorate your wages, the government can also deduct money from your social security benefits and disability checks. They can also take money from your tax refund.
3. Penalties added to the original loan amount can be astronomical
Once you have defaulted on your federal loan, the full amount is due in full. In addition, large fines are added to the original loan amount, sometimes as much as $ 50,000.
John Koch, a law degree at the University of Touro, originally borrowed $ 69,000, but estimates that he will have to pay $ 1.5 million if he retires in 23 years. He currently owes $ 300,000. The student loans are postponed and receive $ 2000 interest every month. In addition, his interest has interest.
4. Uncle Sam Can Sue You
It is clear that the federal government takes loans with default very seriously and has the ability to sue you. There is no time limit, which means that they can bring you to court at any time – even decades after you have failed.
How to prevent you from defaulting on your federal loans
If you are struggling, there are ways to prevent this situation. If you start receiving letters stating that you are delinquent, do not ignore them. Contact your loan service and ask about your options.
When you speak with your lender, you must make extremely accurate notes – create a file and note the date, time, and name of the representative you spoke to. After your telephone conversation, send a follow-up letter by registered mail. Write down all the important details from the conversation in your letter and keep a copy of this letter for your records.
If you are unsure who maintains your student loans, the Ministry of Education has a list.
Income-based reimbursement program
You may also be eligible for the income-based reimbursement program (IBR). If you are eligible for IBR, your monthly payments will be capped based on your income. The payment plan is also extended to 25 years, and the size of your family is weighted in determining how much you should pay each month.
Who is eligible for IBR?
IBR is not available for borrowers with private loans. The federal loans that IBR covers are:
- Stafford direct loans (from the William D. Ford Federal Direct Loan Program)
- Grad PLUS loans
- Consolidation loans (Federal Family Education Loans, also called FFEL, combined with direct loans)
While FFEL loans were eliminated by the Obama administration with the expiry of the Health Care and Education Reconciliation Act, an unimaginable $ 400 billion in FFEL loans is still in the books of the lenders.
It is important to note that you must re-register for IBR every year. Make sure you note this in your agenda and prepare the paper shop in advance. Borrowers who have registered for the program have submitted complaints about the complexity of forms, so plan ahead. If you pay on time, the remaining balance will be remitted after 25 years. IBR is offered for borrowers who have difficulty repaying a typical 10-year repayment plan.
Monthly payments for the IBR are at least $ 50, and often higher. The amounts are based on the amount that you earn. Loan payments are limited to 15% of your income, which means that if you earn $ 50,000 a year, regardless of what you owe, your annual payment will not exceed $ 7,500.
If you think you run the risk of defaulting on your federal loans, it is important to take every possible measure to prevent this. Contact the Ministry of Education to find out more about alternative repayment options, such as IBR. If you are not eligible for a program, do your best to work with the department to prevent this test.
It is also important to keep in mind that a college education does not mean that you will find a job immediately after graduation. It is a sobering fact that many young people with a university degree are unemployed or have insufficient work. This age group has been hit hardest since the economic downturn that started in 2008. That is why it is crucial to think of ways to keep the costs of the university low. This is not an easy task, especially since tuition fees have increased by 498% since 1985.
To make matters worse, the Social Security Wage Index in 2010 reported that 50% of US households earned $ 26,000 or less. If you take all these things into consideration, it is crucial to weigh the total cost of your education – if you are not already in school.
What other tips do you have to pay to go to school without being dependent on student loans?
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