The Occupy Wall Street movement has been going on for a couple of months now, and as I’m sure many are aware, the subgroup of Occupy Student Debt has captured the media’s attention. With tuition at astronomical numbers, and unemployment at a high rate, many students and graduates are unable to repay their loans. Because of this, OSD has a new plan to encourage higher ed reform: refusing loan repayment. In the Inside Higher Ed article Refusing to Pay, Libby Nelson writes:
“Most experts, even those who agree with the movement’s aims, would describe these goals as unattainable. The theory behind the campaign is that if 1 million students refuse to pay, they would face minimal consequences due to safety in numbers. But many experts on student finance worry about the impact on anyone who stops paying: student loans cannot be discharged in bankruptcy; lenders — especially the federal government — will go to great lengths to go after debt; and some borrowers currently frustrated by their debt may not realize the impact of non-payment on future financial goals.”
Student loan default can have massive consequences to the borrower, and it’s important to know what your options are if you cannot afford your loan payments.
How default works
For federal loans, once you miss a payment, you are considered in a state of delinquency. If you remain in delinquency for 9 months, your loans are then in a state of default.
Consequences of default
- Your loans will be turned over to a guaranty agency
- The loan may be accelerated, meaning the entire loan amount becomes due immediately
- You may be subject to garnishment of your wages
- Credit bureaus will be notified and your credit may suffer
- Your loans are no longer eligible for federal benefits
How to avoid default
If you’re having trouble making federal loan payments, there are options available to help ease the burden. Student loan deferment and forbearance are available in certain circumstances such as economic hardship, and even unemployment. Additionally, consolidating your student loans could help lower your monthly payments, as well as your interest rate. For borrowers with private loans, your lender may also offer forbearance and consolidation. If you find that your loan payments are too much, talk with your lender as there may be more options available than you think.
To learn more about avoiding default, and what happens once you have defaulted, read How to Avoid Student Loan Default.
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