The Wall Street Journal reported that student loan default rates are soaring. Whilst a well-paid job allows a graduate to comfortably make student loan repayments, there aren’t currently enough graduate vacancies to go round. Whilst student loan deferment and loan deferment are also rising, many people have little prospect of ever making repayments due to ongoing financial difficulties.
What is Student Loan Default?
Student loan default is considered to have taken place under Section 435(i)Title IV of the Higher Education Act after default has continued for 270 days. During the delinquency period, the lender must exercise ‘due diligence’ which means that they need to make an effort to contact the borrower with regard to repayment. Should efforts fail, the loan could be passed on to a quaranty agency. This could mean that the entire balance becomes payable. Student loan forbearance and loan deferment are no longer possible once defaulted on.
Student Loan Default Rates Rise Dramatically
Figures released by the U.S. Department of Education have revealed a sharp rise in student loan default rates. A total of 6.9% of loans have been defaulted on during fiscal year 2014; this figure was just 4.6% just two years earlier. This is the highest figure since 1998. Figures are similar for the private market for student loans as 3.4% of student loans were written off by SLM Corp in 2015.
The Consequences of Student Loan Default
Once student loan default has been established, there are a number of negative repercussions for the borrowing, including:
- Administrative wage garnishments of up to 15% can be taken directly from wages.
- The Department of the Treasury can offset any federal or state tax refunds against student debt.
- Collection costs can be added.
- Legal action can be taken to request full repayment.
- Credit Bureaus will be informed so it will be hard to get other forms of credit, such as a mortgage.
Those who want to find out what measures can be taken once student loan default has taken place should call the Federal Student Aid (FSA) to discuss repayment options. Filing for bankruptcy cannot be used to write-off student debt.