The vast majority of people understand the necessity of getting an education, but the truth behind paying student loans hits hard quickly after graduation. Generally, there is a six month grace period before graduates need to start repaying their student loans. The reason why graduates desperately need to find a job within this period is because lenders expect repayment immediately, regardless of circumstance.
Consequences for Failing to Pay
The failure to repay student loans is more common than you might think. According to the Department of Education, an average of 3,000 borrowers fall into default weekly. That figure was based on records in 2017. That number is expected to grow in succeeding years, especially when we take the pandemic's economic downturn into account. Some consequences of defaulting on student loans are:
- The forfeiture of deferment or forbearance
- Both the loan balance and interest become due immediately
- The notice of default will adversely impact your credit score
- The loan holder can sue you
- You can potentially lose your home
What to Do
Before anything, it's important to keep in mind that lenders and banks make a profit from your repayments, and they lose money if they have to chase borrowers for payment. It's in their best interest to be helpful to borrowers, as it's the only way that they're going to make money. The first thing to do is to talk to your lenders and be honest about your situation. You can ask for a deferment on payments, and you can even negotiate for more manageable terms of repayment. Here are other things you need to do:
- Increase income, minimize expenses - this helps improve your ability to repay your loans and should be your first long-term goal.
- Consolidate student loans - if you've spent more than one semester in school, it's highly likely that you have multiple lenders. Consolidating all these loans makes repayment easier (one check a month), and it also allows you to stretch your repayment period up to 30 years for much lower monthly payments. (This applies only to federal loans.)
- Enrol in an Income-Driven Repayment plan - these are plans that allow borrowers to pay 10% to 15% out of 'discretionary income' as opposed to the default repayment program that asks borrowers to repay their loans within ten years.
The Last Resort
Finally, if these options don't work, you may want to consider negotiating for a student loan deferment, which essentially functions as another grace period from making repayments. Note that you can only apply for a loan deferment if your loan isn't in default, so you might want to consider getting a quick loan from payday lending institutes like these lenders in Canada to help tide you over.
You may also want to consider filing for bankruptcy if you have no other course of action and no reliable source of income, but there are several conditions that need to be met and even then, there's no guarantee that you walk away debt-free. You'd be far better off trying to make your repayments as best you can.