NASFAA (short for the National Association of Student Financial Aid Administrators) released a startling statistic: one in ten student loan borrowers default on their student loans within the first two years of repayment. Defaulting on a loan means you've missed enough payments that your loan provider, school (and in some cases, the government) can take action to recover the money you owe.
You may be wondering what the difference is between making a late payment and going into default. Per the Department of Education, students are in default on loans that are billed monthly after 270 days without payment. Loans that are not paid monthly (like the Perkins loan, for example) are considered in default after 330 days.
After 90 days, loan servicers will report delinquencies to all three major credit bureaus. Long time Savvy Student followers know all about the burden of having bad credit, but here's a refresher for our new readers:
1) Bad credit will impact your ability to obtain a loan for a home or a car.
2) If you are able to secure a loan with bad credit, you will either need a cosigner or be subject to high interest rates. It's very expensive to not be considered credit worthy.
3) Any entity that requires a contract for service (cell phone companies, rental agencies/landlords, even some employers) can refuse to do business with you if you have a bad credit score. Something as simple and essential as a cell phone can be difficult to obtain affordably if you have bad credit.
4) There are benefits attached to certain credit cards that are only available to those with good credit. Some cards, when used responsibly, can garner the user such benefits as airline miles, free hotels and even cash rewards. If you have a bad credit score, creditors can start to make money off of you instead of the other way around.
In a troubled economy, it's not a surprise that people are defaulting on their loans. It is, however, surprising that so many of these defaults are happening in the first two years. It seems that the problem may be a combination of factors: students are not making enough to pay their minimums, students are not updating their contact information with their loan servicers and as a result are not getting bills in the mail, and many recent graduates are overwhelmed and confused about how to repay loans and what options are available.
The contact information bit is easiest: when you graduate, set yourself calendar reminders in your cell phone or in your email client that will prompt you to go ahead and update your address and phone number(s), if necessary, with your alma mater and your loan servicers. Plenty of young people move all over the place after graduation for jobs and other reasons, and with all of the excitement of being fresh out of college, it's easy to forget about things like loan payments when you're not getting bills in the mail. To make sure you get those bills, let your technology do the work of reminding you to keep your information up to date.
If affordability is the issue, keep in mind that at least for Federal student loans (which are likely the most common), there are income based and income contingent payment plans. You can review these here, and you can usually apply for those types of payment plans online.
If understanding is the issue, remember that the internet is full of reliable information about student loans if you know where to look. Finaid.org is another great resource. Finally, if you just want to talk with a real person, look up your school's Student Loan Officer. At Brandeis, you can call or email us at Student Financial Services and we'll answer your questions.
Being responsible for your debts is something you should start very early in your adult life. These things can catch up to you later on and you'll kick yourself for not taking advantage of all of the information and help that exists with regard to loan repayment. As always, if you have any questions, submit them in the comments or via email to sfs@brandeis.edu and we'll answer them on the blog.
You may be wondering what the difference is between making a late payment and going into default. Per the Department of Education, students are in default on loans that are billed monthly after 270 days without payment. Loans that are not paid monthly (like the Perkins loan, for example) are considered in default after 330 days.
After 90 days, loan servicers will report delinquencies to all three major credit bureaus. Long time Savvy Student followers know all about the burden of having bad credit, but here's a refresher for our new readers:
1) Bad credit will impact your ability to obtain a loan for a home or a car.
2) If you are able to secure a loan with bad credit, you will either need a cosigner or be subject to high interest rates. It's very expensive to not be considered credit worthy.
3) Any entity that requires a contract for service (cell phone companies, rental agencies/landlords, even some employers) can refuse to do business with you if you have a bad credit score. Something as simple and essential as a cell phone can be difficult to obtain affordably if you have bad credit.
4) There are benefits attached to certain credit cards that are only available to those with good credit. Some cards, when used responsibly, can garner the user such benefits as airline miles, free hotels and even cash rewards. If you have a bad credit score, creditors can start to make money off of you instead of the other way around.
In a troubled economy, it's not a surprise that people are defaulting on their loans. It is, however, surprising that so many of these defaults are happening in the first two years. It seems that the problem may be a combination of factors: students are not making enough to pay their minimums, students are not updating their contact information with their loan servicers and as a result are not getting bills in the mail, and many recent graduates are overwhelmed and confused about how to repay loans and what options are available.
The contact information bit is easiest: when you graduate, set yourself calendar reminders in your cell phone or in your email client that will prompt you to go ahead and update your address and phone number(s), if necessary, with your alma mater and your loan servicers. Plenty of young people move all over the place after graduation for jobs and other reasons, and with all of the excitement of being fresh out of college, it's easy to forget about things like loan payments when you're not getting bills in the mail. To make sure you get those bills, let your technology do the work of reminding you to keep your information up to date.
If affordability is the issue, keep in mind that at least for Federal student loans (which are likely the most common), there are income based and income contingent payment plans. You can review these here, and you can usually apply for those types of payment plans online.
If understanding is the issue, remember that the internet is full of reliable information about student loans if you know where to look. Finaid.org is another great resource. Finally, if you just want to talk with a real person, look up your school's Student Loan Officer. At Brandeis, you can call or email us at Student Financial Services and we'll answer your questions.
Being responsible for your debts is something you should start very early in your adult life. These things can catch up to you later on and you'll kick yourself for not taking advantage of all of the information and help that exists with regard to loan repayment. As always, if you have any questions, submit them in the comments or via email to sfs@brandeis.edu and we'll answer them on the blog.
No comments:
Post a Comment