Student Loan Pitfalls

Student loans pitfalls sounds scary, doesn't it? Well, it's a matter of common sense to realize when you borrow money, someday you need to pay it back.

The student loans just like the other forms of financial aid are a service that is subject for repayment. However, although you are most likely aware of this, many borrowers still fall to the trap of walking away from student loan debt which then results to series of consequences.

The student tends to ignore the fact that repayment usually either 90 or 120 days after leaving school or after dropping below half-time enrollment. Because of this, the loans remain delinquent for 270 days or become 270 days past due at any time, leading the loans to “default” status.

Student Loan Default, Defined

Defaulted student loans are actually defaults made by the borrower to the creditor of the terms and conditions of the student loan contract. It is usually caused by the act of escaping from debts, leading to unfavorable consequences on the part of the borrower.

Basically, just before the declaration of student loan default is the delinquency period. During this period, the lenders of student loans authorized under Title IV of the Higher Education Act will exhaust all efforts to find and contact the borrower. If the lender’s efforts of locating the debtor are unsuccessful, the loan will then be placed in default.

When this occurs, it will be turned over to either the state guaranty agency or the Department of Education. And, once the loan enters the default status, the maturity date is accelerated, making the overall payment in full due right away.

If this happens, here are possible consequences:

The loans may be turned over to a collection agency.
The borrower will be liable for all the costs associated with collecting the loan. This may even include the court costs as well as attorney fees.
The borrower can be sued for the entire amount of the loan.
The wages may be garnished.
The federal and state income tax refunds may be intercepted.
That federal government may withhold part of the Social Security benefit payments.
On the credit record, the defaulted loans will be mentioned, making it difficult for the borrower to get an auto loan, mortgage and even credit cards. Note that having a bad credit record can harm your ability to find a job.
The borrower’s chance to receive federal financial aid will now be impossible to happen until he repays the loan in full or make arrangements to repay what he already owe and make at least six consecutive, on time, monthly payments.
Federal interest benefits will be denied.

These may be student loan pitfalls but, in reality, all loans have these pitfalls so never attempt to hide from repayment.

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