Student loans are an excellent way for young adults to get an education. Unfortunately, some college graduates and non-graduating students fail to pay back the money that they owe. This puts a damper on lenders who trust students to fulfill their obligations, and it destroys the creditworthiness of young people who are just starting out in the world.
Process Of Recovering
The process of recovering from defaulting on a student loan is difficult. These type of loans are different from credit cards or medical bills that can be wiped out if a person declares bankruptcy. A student loan cannot be cleared by utilizing a standard bankruptcy.
Student loans have strict refinancing and repayment terms. If an individual defaults on a student loan, they will have to go through a number of steps to satisfy their lender.
Lost Wages And Garnishment
The penalty is steep if a person decides to not pay their student loan back. They will forgo as much as 25 percent of their total income to slowly cover the cost of the loan that they defaulted on. In addition, the full value of a person’s tax refund is subject to garnishment. What’s worse is that a lender has the ability to continue garnishment of both wages and the complete amount of tax refunds until the debts of the individual have been completely satisfied. Obviously, this type of garnishment could last for years if the defaulted loan is large.
Avoiding garnishment can be done. However, it does take some work on the part of the person who has not made their payments. To prevent garnishment of tax returns and income, the individual who defaulted on their loan must contact their lender so that a repayment plan can be drawn up. In most situations, this plan for repayment will require a person to pay several other payments on time. Of course, this would be difficult if an individual has a financial hardship such as losing their job. Unfortunately, this is the only way that an individual has any chance of avoiding a garnishment against tax refunds or total income.
Filing For Bankruptcy
A person does have the opportunity to file for bankruptcy, which includes a declaration that states they have an economic hardship that is unavoidable. While that possibility is available, it’s difficult to do. When a student loan debtor files a “hardship” claim, they must meet a number of strict requirements and have proof to back it up. Otherwise, repayment plans must be adhered to.
If a person is able to make a number of payments on the student loan that they defaulted on, they do have the possibility of being restored to a status of “good standing.” This will allow for a garnishment to be removed. However, the process of repayment must be continued.