Kimberly Hamilton of Beworth Finance on how she tackled debt in D.C.
Student loans offer a helping hand when you can’t afford to cover the costs for school, and loans will even go as far as to help you cover the costs of living. Borrowing has become the norm.
While student loans can help you pay for school, they must be taken seriously, if they are not repaid fully and on-time, they can quickly turn into a nightmare for the borrower.
Student loans are a special type of loan because unlike other types of loans they do not go away even if you declare bankruptcy. And they must be paid even if you don’t graduate and finish your degree.
Federal student loans become delinquent the moment you miss a payment. You may continue payments the following month but it will remain delinquent until the past due balance is paid in full. After 90 days of being delinquent, the lender will report the delinquency to the major credit bureaus, which will then hurt your credit score.
If the account continues to be delinquent after 270 days of missing a payment, the account will default. Defaulting on your student loan may be the worst case it can come to.
The consequences of defaulting on your student loan can be disastrous and may include:
These are just some of the consequences that come with defaulting on your student loan. It is also worth mentioning that the damage left on your credit can have repercussions on other aspects of your life. Due to a poor credit, it may be difficult to get approved to rent an apartment, obtain credit cards, mortgages, and any other type of consumer credit - it will also mean that you will be charged a higher interest than someone with good credit.
If you have missed payments you will enter into student loan delinquency and be charged late fees, but there are ways to avoid default on a delinquent student loan. The first step is to immediately contact your loan servicer and explain why you were not able to meet the monthly payments. Once you understand your situation and your options, your loan servicer may be able to help you avoid default and you may be able to:
Remember that qualifying for deferment or forbearance does not mean that your balance is forgiven, it means you are allowed to stop making payments for a predetermined period of time. However, once that period is over you must resume making payments, including interest accrued during that time.
If you have defaulted on your student loans there are ways to get out and rebuild your credit. The quickest way to get out of default is to repay your student loan balance in full. However, this option is not realistic for most borrowers. The other options are student loan consolidation and student loan rehabilitation.
In order to be approved for student loan rehabilitation, you must agree in writing to make nine monthly payments in a period of 10 consecutive months. If you rehabilitate your loan the record of default will be removed from your credit history, but it will still show the late payments reported before the loan went into default.
Another option is to apply for direct consolidation loan. In this case, you must agree to either switch to an income-driven repayment plan or make three consecutive on-time payments on the defaulted loan before consolidating it. Consolidation allows you to combine all of your loans into one simple payment. After the defaulted loan has been consolidated you will once again have access to benefits such as deferment, forbearance, and loan forgiveness. However, unlike loan rehabilitation, consolidating your defaulted loan does not remove the record of default from your credit history.
The short answer is no. According to the U.S. Dept. of Education, you cannot be arrested for failing to pay your student loans.
But, it CAN technically happen. If you go to court and get sued. For example, in 2016, Paul Aker from Texas reported he was arrested and then forced by a judge to sign a repayment plan for a $1,500 bill from 1987, according to Houston Fox 26 News.