College students often think that they will have no problem paying off their student loan once they graduate. They assume that they will land a high paying job right after graduation and do not bother to make a concrete plan on how they will pay the money back if they do not get the job of the dreams.
Read more to find out about options for handling your student loan payment so you don’t experience any unnecessary surprises with late payments that could negatively affect your financial future.
When a student loan is not paid back on time it goes into default and ends up going to a collection agency. Not only will someone have to pay a higher interest rate on their loan, they may have to pay some sort of collection fee as well.
How It Affects Your Credit
Once a loan goes into collections someone’s credit is negatively affected. When someone does not pay their student loan on time, lenders view them as “high risk” and credit card, car loan and mortgage applications are likely to be denied.
Declaring Financial Hardship
The United States Department of Education offers lenience to those who are unable to pay for their student loan according to their loan contract. Someone can declare financial hardship by proving they do not have the means to pay back their loan.
Defaulting And Collection Agencies
Once a student loan has defaulted and has been sent to a collection agency, it is too late for someone to declare financial hardship and save their credit rating. They are forced to deal with the collection agency and will have less chance of negotiating a reasonable monthly payment plan.
What Happens If You Can’t Pay?
If someone suspects that they will not be able to pay back the loan on time and their loan has not been sent to a collection agency, they should contact the Department of Education and begin negotiating a student loan repayment plan.
If negotiations are successful, the student loan will be brought out of default and if the student sticks to the decided payment plan, they have a good chance at saving their credit rating.
Garnished Wages
Even people who have their wages garnished because of their student loan debt can contact the Department of Education, making an attempt to negotiate loan payments. Once a loan is pulled out of default, collection agencies will lose their right to collect payment from the student.
By submitting evidence of financial hardship, someone may be able to lower or stop the interest rate on their loan for a certain time period.
Tip:
Check out a free student loan payment calculator to help you predict what types of payments you will be required to make.
