Student Loans: Borrower Responsibility and Repayment Headaches
Getting an education will open up many doors in your life. Not having the financial means should never be an excuse for not taking advantage of this opportunity. If you are not in the financial bracket where the federal government pays for your education (grants, i.e. Pell), federal loans are available. This is a wise option to use, however you must be responsible for paying them back after graduation. I have not been, so I am writing this to help a current or future student avoid the possible pitfalls. As in my case, some of the consequences are stunted financial growth, unwanted stress on your family, and deferred dreams. Here are some of the mistakes that I made:
a) Did not take responsibility for my obligation.Do not ignore the situation or think it will go away. Shredding your statements will not erase the issue. You cannot default or go bankrupt with your school loan. This type of debt is not eligible. The Federal Government will get their money at some point. If you do not pay willingly they will garnish your wages and your tax refunds until the entire debt is paid off.
b)Transferred a defaulted loan which incurred very expensive penalties. I thought transferring the debt to another large lending institution would buy me time and ease the pressure. What I did not pay attention to, is the penalties that the loan company assesses after many months of delinquency. They will tack on between $5,000-$10,000 for collection fees, etc. If you work out a plan to bring your payment status current (usually 6 months of on-time payments) then the penalties will be dropped.
c) Did not make it a priority to pay off the loan. It is of grave importance to the lending companies. If you do not take care of your student loan commitment, other priorities like purchasing a home, car, investing, and other projects will get pushed to the background until you become current with your payments.
d) Lost track of the number of different lenders that I had.The federal government will offer to lend you money for your education if you do not qualify for financial aid such as scholarships or grants (money given that you do not have to pay back). You will have to look towards private lenders if you need to borrow money for your post-baccalaureate education. I had a different lender each year. This can be tricky upon completion of your degree as you will have multiple obligations after graduation. It gets even more complicated once they turn your account over to collections. At one point, I was receiving mail from six to seven different companies and agencies. Imagine the confusion.
e) Did not have a game plan to repay the loans before I finished school. I just figured I would handle it when I receive my first bill. I did not take into account that I would be paying back multiple lenders at once. A better strategy would have been to meet with the financial aid department at school prior to graduation. I could also have called the loan company to see how much the proposed payments would have been. Most companies give you a six month deferment (grace period) after graduation which will allow you to find a job and get your finances in order.
f) Used an excuse that I did not have the money to pay back. It is very interesting that when your back is pushed against the wall, you can come up with clever ways to make money. Desperation is a funny motivator. Think resourcefully on how you can use your time and talents. Many hobbies you have can be turned into profit. At the very least, you can pick up a part time job to give you a little breathing room.
g) Did not save up money while in school to pay lenders back. Graduation always seems so far away. It is easy to get lulled into the “I’ll think about that time when it comes. If you have an unsubsidized loan, the interest accrues while you are in school. Making payments on your interest (and principal) will reduce the amount owed and may even affect your monthly payments after graduation.
h) Didn’t seek advice from someone knowledgeable in finances. After graduating with my undergraduate degree, I foolishly worked with someone my own age who was not a seasoned financial veteran. He did not have a proven track record. Unfortunately, this was a huge price to pay as I became cynical of using financial advisors. I lost valuable time and resources that could have been used more wisely. After that experience I tried to handle things on my own (unsuccessfully). Whether it be a family friend, or a licensed financial advisor, find someone that has successfully walked the path you are about to embark. They can help you avoid many foolish mistakes and pitfalls.
What Happens When Your Loan Goes Into Default
- Understanding Default | Federal Student Aid
Defaulting means failing to make payments on your student loan according to the terms of your promissory note. Defaulting can have serious consequences.
Options For Repaying Your Student Loans
Tips For Dealing With Student Loans
1. Take personal responsibility. No matter what happens you must acknowledge what has happened.
2. Understand the contract and fees.
3. Call and speak to company if you are going through tough financial times. They may be able to put your payment status to deferment while you are trying to get back on your feet.
4. Do not have your balance transferred to another lender ie. Sallie Mae, Nelnet if it is in default.
5. Have a plan for repaying the entire loan in a timely fashion.
6. Understand the associated penalties if you do not stay current with your loan payment.
7. Brainstorm on ways you can make money to accentuate your regular salary.
8. Get a mentor who has established good habits with money.
9. Do not rack up unsecured credit debt (ie. Credit Cards). This will only add further pressure to your situation.