Preventing student loan default

Student loan debt is a problem. That’s not news. Every year the cost of a secondary education increases and the amount of debt incurred by college and university students rises in step. The vast majority of students leave school with five or even six digit debts. It’s an enormous burden to carry, especially at the very beginning of their professional, adult lives.

It’s such a burden, in fact, that many students choose to ignore the problem altogether.

In truth, there are a number of different reasons why, but when student loan borrowers default on their loans, they most often do so within two to three years of graduation. They either aren’t able to find work or the work they do find doesn’t pay enough, and so their now-due loans go unpaid.

It’s bad for young borrowers and it’s bad for the economy in general. Student loans are almost impossible to clear away in bankruptcy, meaning these recent graduates may try to hide from their debts, but there is no hiding from student loan debt. It means ruined credit and potential wage garnishment. Suddenly, the already difficult task of making ends meet in a tough economy has only gotten worse.

The Department of Education tracks the default rate on federal student loans two and three years out from the moment those loans came due. One of the reasons this is done is to hold colleges and universities accountable for early defaults. An educational institution with a default rate exceeding 30 percent for 3 consecutive years or 40 percent for a single year will lose access to federal aid programs.

Even though the overall 2 and 3 year default rates are rising, it’s actually pretty rare for schools to reach penalty levels. Unfortunately, that’s because many game the system by encouraging students to take deferments and forbearances – not because it’s in the students’ best interest, but in order to keep those loans from defaulting within 3 years.

There are options available, though – it’s just a matter of finding the right solution for your unique situation.

That’s why it’s so important for recent graduates to get their act together and create a plan for handling this enormous financial responsibility.

If you’re a recent graduate or know someone with student loan debt looming on the near horizon, consider student loan counseling. The sooner you can understand your options and responsibilities, the less likely you are to be overwhelmed by them, and the more likely you are to keep those debts in good standing.

Our trained counselors can help you get an accurate picture of what you owe, who you owe, and what options are available. By getting out ahead of your student loan debt problem, you can avoid becoming another statistic.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

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