Defaulting Student Loans - A Curse In Disguise

By Author: michel smith
Total Articles: 97
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Defaulting student loans are escalating on a huge scale in the midst of a declining job market and rising unemployment among graduates. At the same time cost of tuition are soaring to new heights. In an educational loan program, a default occurs after non-payment of loans for 270 days in the case of monthly installment repayments and 330 days in the case of less frequent modes of paying back. A student is responsible for repaying his loans even if he does not finish school or has trouble finding a job after graduating. A school loan default has serious consequences. Defaulting student loans are not dischargeable through bankruptcy but certain procedures may be followed based on legal advice.

In the United States, rising cost of education has prompted the federal government to start a student loan program to help college students pay for their education. The program is designed so that students can borrow money with interest and as a result of subsidization can defer payments till they have finished their schooling. Although these aids are called loans where interest is charged, what is generally offered ...
... is a total financial aid package which includes grants, scholarships and other aspects. The loans available are of three types: federally subsidized and unsubsidized loans and private loans. Almost seventy five percent of school loan defaults occur when students withdraw from their courses midway and fail to finish school.

Consequences for defaulting student loans are severe. The loans may be handed down to a debt collection agency and the defaulter would have to bear the costs of collection including court charges and attorney costs. The US Supreme Court has upheld the governments right to pursue school loan defaults by withholding part of the social security benefits. Defaulting student loans will result in ineligibility for deferments. No more federal financial aid will be given to defaulters till they pay the full loan amount or arrange for the repayment of the full amount and then make six consecutive monthly payments on time. Credit bureaus will also be notified and that would result in lowering of a defaulters’ credit rating.

As unemployment rates go from bad to worse and defaulting student loans go on increasing, lenders are complaining about escalating pleas for help. Borrowers on school loan default can ask their creditors for “forbearance” or in some cases “deferment”. The former means their payments are on hold till they attain some kind of financial stability while qualifying for the latter involves the government covering the interest payments for a stipulated period of time. Guide books to counter school loan default are published by the US Department of Education Debt Collection Service. These books include information on various aspects of defaulting student loan including consequences, collection costs, repayment methods, solutions to disputes and other related topics.