6 Consequences If You Default on Your Student Loans
Even though Steve Jobs the founder of Facebook and Bill Gates founder of Microsoft were both college dropouts, It still can’t be denied though that many jobs still require a college degree and that not everyone wants to start their own business from scratch.
Those who need help with college payments often take out student loans. In fact, loans consist of 34% of financial aid for college students. Federal loans gave out around $62.1 billion in 2014-2015, according to The College Board.
While there are many who turn to student loans for help. There are also many who default on their loans, according to a New York Federal Reserve report.
The Consumer Financial Protection Bureau says the total amount of loans has reached a trillion dollars.
Some pay late, are following the wrong repayment plan, or don’t have money to repay the loan. Others, though, have a skewed opinion when it comes to student loans.
Its not just ordinary people defaulting on their student loans either. There’s an epidemic of unpaid school loans from all walks of life, even celebrities.
Celebrities with Unpaid Student Loans
Miles Teller, a young actor who starred as genius Reed Richards (aka Mr. Fantastic) in the latest “Fantastic Four” reboot, and as the infuriating Peter Hayes in the “Divergent” film series, had studied Method acting at the Tisch School of Arts at New York University.
He had around $100,000 debts with student loans, but hasn’t been able to pay them off yet.
It’s not that he’s dirt poor; his career is just taking off. His manager apparently told him that the interest was low so he didn’t need to worry about it!
From “Saturday Night Live”, Alfred Langston “Finesse” Mitchell attended the University of Miami, and became a member of the Kappa Alpha Psi fraternity while there. He graduated, but not without the help of student loans.
In an NBC video, Mitchell says that he knows all about debt collectors, as he’s been hounded by Citibank employees regarding his student debts.
He still hasn’t paid them back, though, saying that “he doesn’t need good credit to live well”, which might be troublesome for others, as bad credit can result in unemployment, wage or Social Security garnishing, or even a lawsuit.
An average University of Miami student loan is around $30,000.
Actor-comedian and semifinalist of “The Last Comic Standing” in 2010, Kevin Bozeman graduated from the University of Wisconsin-Whitewater, where he played college basketball.
He didn’t have much of a plan after his collegiate basketball career in 1999, but he did get something from his time in higher education: student loans to pay.
In a Comedy Central video, Bozeman makes light of the collectors calling him about his overdue payments, but now that he’s got enough income, he says he is paying back the loans as well as he can.
Consequences of Defaulting on Student Loans
You might think that anyone who’s got student loans can just forget about their debts. The “Obama Student Loan Forgiveness Program” shows changes made by President Obama in the William D. Ford Direct Loan Program.
Over 400,000 disabled people can have their student loans waived, under the changes.
Also, only 10% of your discretionary income will be taken, instead of the 15%.
It’s only logical that you won’t be able to pay back your debts if you still have no job, but here are some things you have to remember.
There Are More Fees to Pay
If you have defaulted on your loans, you will no longer be receiving monthly bills. Great!
Except that you’ll need to pay your loan in full immediately. Also, interest incurred will be added to your loan, so you’ll need to pay a higher amount.
The biggest thing is that you will also pay collection costs depending on the kind of loan you had. These can be as high as 40%. A $25,000 loan can grow as large as $35,000 in just a year!
Your Tax Refund Can Be Taken
Defaulted loans allow the federal department or agency will send you a notice that they will be taking your tax refund to pay for parts of your loan. Yes they will intercept your tax refund.
You can’t stop them either, unless you settle your loans in full or arrange a repayment plan with your agency.
They will not need your permission to get even 100% of your tax refund, but you will know how much you’ve lost when they levy your account.
They Can Take From Your Wages
Those who took out a loan can expect 10% of their wage to be taken, after a one month notice. With Obama’s changes, though, you can breathe a bit easily with the Pay-as-You-Earn repayment plan.
Beware of Lawsuits
Although it’s not usual, the agency or the US department can sue you for refusal to pay back the loan.
If you have money to pay it, then it’s best to not let your loan get defaulted.
But if you have financial problems, you can go to the agency you borrowed money from or ask help from a government department or organization to help you come up with a repayment plan so that your assets will not be seized, this includes your bank accounts.
They may even negotiate a lower payoff so you don’t have to pay the full amount back of your original student loan.
You Might Lose Your License(s)
Some states or boards will allow the agency to revoke your license (professional or driver’s). That happens quite a bit….. Its a “catch 22” tho.
You go to college to get a degree and get into a profession that requires a professional license and if you don’t repay your student loans they can suspend your professional license(s) and you are back to square one without a job that requires a license.
You Won’t Be Able to Get Additional Financial Aid
Considering that you haven’t been able to pay off your existing student loan, you will most likely not be able to apply for a new financial support.
Don’t lose hope, though. You can repay your loans with the right repayment plan and savings strategies.
In fact, Kerry Washington, star of “Scandal”, the hit primetime TV series that started in 2012, was able to pay off her loans when she was already in her mid- to late 30s.
She delivered a speech in 2012 on Barack Obama’s re-election as president. There, she revealed that she took out student loans to get through college at George Washington University.
Although she didn’t reveal how much she owed (which she was able to pay off when “Scandal” hit it big), GWU students get around $30,000 student loans on average.
You don’t have to be an actor to pay off huge debts, though. Matthew Burr, who had to pay about $74,000 in student loans, was able to do it in just 2 years.
The important thing to remember is to act on it as soon as possible, and to follow a feasible repayment plan.