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Student Loan Default: Deal With It NOW

Posted on: June 2nd, 2014 by Charles Faquin No Comments

Student loans have become a pandemic among young Americans graduating from institutions of higher learning. These debts have inflated the market of for-profit universities and continue to devour the disposable income of recent graduates. The easy access to private and government funding for any type of educational program is partially to blame, as are traditional learning institutions with inflating tuition rates and the under-regulated for-profit colleges – many of which are completely online. Some of the results of this growing crisis are finally beginning to come into focus: fewer first time home buyers, graduates unable to find work in their fields of study, and (the most pressing issue) increasing student loan default rates.

Student Loan Default Impacts Employment

For a recent graduate entering the job market, it is extremely important to avoid student loan default. An estimated 60% of employers run credit checks on prospective employees. For recent graduates with professional licenses in Tennessee, student loan default could destroy your career – at least temporarily. Under Tennessee law (Public Acts 1999, Ch. 476), members of any state regulated profession (lawyers, nurses, doctors, teachers, etc.) can have their licenses revoked for defaulting on student loans. This is a scary prospect in a saturated job market for a recent professional graduate with no work experience, no income, and a mountain of debt.

Student Loan Default

Step 1: Graduate (Check). Step 2: Find Good Job (_?_). Step 3: Avoid Student Loan Default (_?_).

Avoiding & Curing Student Loan Default

Avoiding student loan default is imperative for anyone dealing with overwhelming educational debt, and there are helpful options available. Servicers of federal loans are required to offer modified repayment programs whereby a loan will be “rehabilitated” after a series of consistent payments are made on time. However, most servicers do not offer this type of program for private loans. If your student loans are in default, it is extremely important to contact your servicer and find out what programs they offer: forbearance, deferment, interest-only payments, etc.

Bankruptcy Relief for Student Loans

Another option is repayment, and sometimes student loan default rehabilitation, in a Chapter 13 Bankruptcy Plan. If your circumstances are extreme, you may qualify for the elusive “undue hardship” discharge of student loans in bankruptcy. If bankruptcy is your chosen course of action, be sure to provide your attorney with a copy of the original loan documents. Your attorney will need to check for terms triggered by a bankruptcy filing. Also, notify any co-signors on the loans, as they may be affected.

Helpful Student Loan Websites

For more information about student loans, here are few helpful websites: SLBA, Federal Student Aid, Project on Student Debt, & NSLDS.

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