What Happens When You Default On Student Loans and Credit Cards
I graduated from Howard University with a B. Arch. and ultimately found work in a small Architects office with a fellow classmate of mine in sunny Nassau, Bahamas.
I rented a beachfront bungalow and worked on Paradise Island. Life was good…
Until one day I found out that I needed working papers to continue working and could not apply for them while I was living in the Bahamas.
When I was unable to obtain working papers to continue working in the Bahamas, the work quickly dried up and my cash flow was abruptly interrupted.
I did what many red-blooded Americans do… Started Living on credit cards.
I was living near the beach, beautiful weather, beautiful women, fresh air, peace and quiet. It was a good life…
I was a Master at MasterCard…
Borrowing from one card to pay the bill on the next card. …Until I maxed out ALL my credit cards and the cash dried up.
Then I became a Master of Financial Disaster.
I remember when the gas stove (which ran off of a gas tank) ran out of gas. It was $60 (which I didn’t have) to refill the tank – so I just stopped cooking and only ate raw foods.
If you want to lose weight, just eat raw foods for months. Taste like crap but works like a charm. I lost lots of weight. I was skinny. Mainly because I ran out of money for food.
I remember one day only having one dollar to my name which bought me a small bag of potato chips and a soda. That was my meal for the day.
At about this same time my student loans were coming due. STUDENT LOANS? …You gotta be kidding me.
I couldn’t already provide food – The student loans would have to wait.
Guess what happens when you don’t pay your student loans? Borrowers who fail to make a payment on time are considered delinquent on their loans. Deliquent student loans are trouble.
Student Loan Borrowers who don’t make payments for 270 days are in default. Defaulting has harsh and long-lasting consequences:
The Department of Education can closest need repayment of the total loan amount due.
The Department of Eduction will attempt to collect the debt and will charge collection costs.
And by the way, The Department of Education reports defaulted loans to national credit bureaus, damaging the borrowers’ credit ratings and making it difficult for borrowers to make purchases such as cars, get a home mortgage or already rent an apartment.
– Borrowers with loans in default are ineligible for Title IV student aid.
– Borrowers with loans in default are ineligible for deferments.
– The Internal Revenue Service can withhold borrowers’ Federal income tax refund, including your spouses’.
– Borrowers’ wages may be garnished up to 15% of the Gross. Gross, not net!
– Borrowers with defaulted Federal Family Education Loans (FFEL) or Direct Loan Program loans (DL) may be liable for collection costs incurred to collect the loans.
If the holder of the defaulted loan, which may be either the U.S. Department of Education or a guaranty agency, retains a collection agency to collect defaulted loans, charges imposed by the collection agency may be additional to the amount borrowers owe.
This method that the amount of the Student Loans may include collection costs of up to 18.5% of the principal and interest noticeable on the defaulted loan.
ALL OF THESE THINGS HAPPENED TO ME!
This is the end of Part 2 of a 4 Part Series Next Time: Credit Card Default