Government takes steps to address high student loan default rate
Like students around the country, a high number of young people in Miami-Dade County, Florida, have relied on student loans to fund at least part of their education. Unfortunately, between increases in tuition costs and the current job market, many young people are defaulting on these loans and finding that they are not even dischargeable through bankruptcy. New government initiatives, however, are working to address the issue of student loan default by making payments more reasonable and giving young people more information about their repayment options.
Lessening the burden on students
Most people are aware that the high cost of education and the growing amount of student debt is becoming a significant issue. A White House press release reports that public four-year college tuition has increased an overwhelming 250 percent over 30 years, even though average income has only gone up 16 percent. USA Today states that over 2 million people have defaulted on student loans.
One government initiative will make payment plans more manageable by allowing borrowers to limit payments to 10 percent of their monthly income. According to another White House press release, changes in the law will also allow any remaining debt to be forgiven after 20 years, rather than 25. USA Today reports that the government will additionally focus on making information about repayment programs and forgiveness plans more accessible to young people, who often do not understand what their options are.
It is very important that young people are given the means to stay on top of student loan debt. In many cases, student loans are not dischargeable in bankruptcy, and borrowers who do find themselves in the position of defaulting face serious consequences.
What happens during student loan default
Defaulting on a student loan can have a lasting impact on an individual’s financial standing while adding to the expense associated with the loan. The Federal Student Aid website, which is affiliated with the Department of Education, lists some of the consequences of defaulting on student loans:
- The rest of the loan – both principal and interest – is due immediately.
- The borrower loses eligibility for additional aid, forgiveness programs, deferment and related options.
- The default is reported to credit bureaus.
- The overall debt will increase as interest keeps building, in addition to late fees and costs like collection fees or court fees.
Additionally, according to the same source, the following consequences are not guaranteed but still possible:
- Wages may be garnished.
- Tax refunds may be withheld.
- Federal employees may have 15 percent of their pay withheld.
- The lender may file a lawsuit.
In short, defaulting on a loan can have devastating consequences that take years to come back from, and borrowers still ultimately have to repay their loans. Hopefully, once payments are smaller and borrowers are better educated about their options, fewer people will suffer from the consequences of defaulting on student loans.
If you are unable to keep up with your own student loans, you should contact a bankruptcy attorney. Although student loans are typically not dischargeable under bankruptcy, an attorney may be able to help you eliminate other obligations so that you can better handle the burden of your loans.