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Reasons Why We Should Avoid Student Loan Default at All Costs

too-muchIn America, having debts is an ordinary circumstance for most of us. In fact, it is the rich nations and rich people who have a staggering amount of debts. We may have unsecured and personal loans in the past that we hope to escape paying. If the amount is not that high, parents, understanding relatives, and friends could let a personal loan pass. There are loans, however, that we should not ignore. Student loans are a perfect example of this, especially federal loans. A loan default can lead to unimaginable consequences in the future. We may not feel it right away, but a student loan default is sure to give us a headache once a debt collector comes after us.

The Basics of a Loan Default

There are different ways of paying a student loan. Depending on the agreement, when the time comes for the payment, we should send in the amount needed for a specific month, including the interest. When we fail to do so, that is considered a student loan default, and it could be nasty if we do not address it right away.

Typically, a 30-day grace period is given to settle the amount for that month. Some lenders implement a stricter rule where failure to pay on the agreed date automatically incurs a penalty. Waiting to make payments only ends up intensifying the consequences, which are usually additional fees. This will add to the total amount of the loan, making it even harder for us to pay. So it is clear that we should always try to avoid a student loan default. If the student loan default reaches around 90 days of non-payment, we should now expect that we are going to have frequent calls from the debt collecting service.

How Default Can Cause Chaos in Our Lives

Hollywood depicts in their movies how a debt collector can ruin the day. We may tend to think that that is only an exaggeration in the movies. But if I were you, I would not take it lightly. Debt collectors can really pose a problem in our lives if we continue to neglect our responsibilities in paying our student loans. Aside from the additional fees that are imposed on us after a loan default, the legal actions that the lending company will take can be the biggest nightmare in our lives.

If you applied for a federal student loan, do not expect the Department of Education to come after you. They will hire a collection agency that will do all the debt collecting for them. This is where the headaches begin. Agencies such as these lay claim to a percentage of the collected amount. It is to be expected that a professional debt collector knows exactly what to do to put pressure to the defaulters. If not through a debt collector, the institution you are indebted to could ask for a fixed percentage from your monthly salary.

We can avoid being in this situation if we just make sure to pay our debts at the agreed time. Unemployment after graduation might pose as a problem, but be ready to talk to the lender about the situation before a student loan default happens. Lenders are usually willing to adjust the mode of payment depending on the circumstances.

If you are defaulted there may still be a chance to consolidate before it is too late and they structure an administrative wage garnishment. There are advantages to those who can qualify for federal benefits that would be available through a direct consolidation loan.

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