Student debts are getting to be a lot like opinions – almost everyone has some. In fact, the average student now graduates from college owing around $30,000. Why this much? Experts believe there are several factors to blame. First, student loans are very easy to get. They’re not like scholarships because almost everyone can qualify for a student loan. Second, there is now so much of an emphasis on getting a college degree that many people who really don’t need a four-year degree are borrowing the money to finance one. And, of course, college gets more expensive every year. While a report from the College Board showed that the cost of college increased again in 2013-14, the good news is that it was the smallest percentage increase in 30 years. However, many students are paying more in fees and tuition because federal and state aid has not kept pace.
If you want to really get in trouble your student debt
Many people carrying thousands of dollars in student debt are managing their loans sensibly and even getting them paid off within a reasonable amount of time. We read one article recently of a couple that had $100,000 in student debts and was able to pay them off in just two years. On the other hand, there are people who manage to really mess up their student debts and here’s how they do it.
Step 1: Lose track of how much you owe and to whom
The first good way to get in trouble with your student debts is to lose track of whom you owe and how much you owe. It’s pretty easy to do this. All you have to do is stop paying attention to your loans and any notices you receive regarding them.
On the other hand, if you’re serious about repaying your student debts you need to make a list of how much you owe and to whom. It’s possible that you may have to make multiple payments and maybe even to different parties such as lenders, servicers or both. For that matter, you may even be making multiple payments to the same loan servicing company. These loan servicers can help you with your loan repayment. They usually provide customer service for your loans during repayment, offer online account access and accept your payments. But it’s important to know whether you’re making payments to a lender or to a servicer or if you have multiple lenders or servicers because your loans were resold.
Step 2: Don’t select a repayment plan
A second thing you could do if you really want to mess up your student debts is to not select a repayment plan. This is where you could really be dumb. But if you want to be smart about your student loans you will select a repayment plan. There are many different options available meaning that you will have some decisions to make. For example, you may need to decide how long you want to take to pay off your loan and how much you want to pay each month. You may also need to decide how much interest you would be willing to pay over the life of the loan.
Step 3: Be dumb about credit
You probably have other credit in the form of a credit card or credit cards or an automobile loan. One great way to get in trouble with your student debt is to let the rest of your credit get out of control. If you run around willy-nilly charging stuff on your credit card or cards you’ll eventually run up so much debt that it will become virtually impossible for you to make the required payments on your student loans. But if you want to be smart, you’ll never charge more in a given month then you can pay off either when your statement arrives or before the end of your grace period, which is the number of days you have before the credit card company begins charging you interest on your new purchases. This is normally 20 to 25 days.
Your credit card statements will also include a ” minimum payment due.” This is what you must pay on your credit card to stay in good standing with the card issuer. The way it’s calculated is usually as a percentage of your new balance. How this is determined varies from credit card issuer to credit card issuer. But it will be a formula that is exclusive to that company. One credit card bank might calculate your monthly minimum as the interest you owe plus 2% of your balance. On the other hand another bank might use 2.5% of your outstanding balance. But whatever is your minimum due, you must at least pay that much and by your due date in order to protect your credit. If not, you will have a late payment on your credit report, which will damage your credit score. It’s even worse if you miss a payment as this could drop your credit score by as many as 60 points.
Understand that you would never get out of debt
If you make the minimum payment before your due date, you will remain in good standing with the credit card issuer but this could keep you in debt practically forever. As an example of this, if you owed just $2000 at 19% and made the minimum payment of $40 every month, it would take you 335 months or nearly 28 years to completely pay off that debt.
Step 4: Ignore those late payment notices
Another thing you could do to really mess up your student loan debts is to ignore your payment notices. I mean, what the heck? Would it really hurt to miss just one payment? Would some rep from Sallie Mae call and scold you? Would you get stuck with a huge fee or see your already fragile credit score take a hit? Well, there are bits of truth to these. For example, your credit report will take a hit as late payments on student loans are typically reported to the three credit bureaus – Experian, Equifax and TransUnion. However, this can vary depending on the loan and the lender. For example, Sallie May generally doesn’t report delinquent private loans until after 45 days. So if you are 35 days late you may not get a black mark on your credit reports.
Student loan debts like credit care debts typically have a grace period before you’re hit with a late fee. Sallie Mae’s late fee is 6% of your minimum payment after you have one late payment that is at least 15 days past your due date.
Step 5: Default on one of your loans
You can really screw up a student loan if you default on it. A default is when you fail to repay your loan based on the terms of the promissory note you signed. However, there is a period of time before the federal government and lenders officially consider you to be in default. Most federal student loans won’t be moved into the status of default until you have gone 270 days without making any payments – or about 45 months.
What happens if you default?
Defaulting on a student loan has serious consequences. This will make it difficult for you to get an auto loan, a mortgage or even lease an apartment because your credit will have been severely damaged. You’ll owe even more because your lender will probably be allowed to charge you interest on your unpaid interest. You could see your debt turned over to a collection agency that will likely hound you unmercifully and you could even see part of your paycheck seized. Your state and federal tax-free funds, Social Security and disability income could also be seized and you would lose your eligibility for all federal aid
If you would rather keep your student loan debts under control you need to be proactive in dealing with them. The best and easiest way to do this is to set up automatic payments so that they will be debited from your account before your due date. And you should communicate with your lender or lenders. Don’t stick your head in the sand and hope for things to get better. As soon as you know that you need to make a late payment, contact your lender. If you have been making your payments consistently up until then, your lender might not report your delinquency to the credit reporting bureaus and even waive your late fee.