Financial Literacy

Don’t Let a Student Loan Default Ruin Your Financial Life

While it is generally accepted that higher education is an essential credential in the 21st century, it is equally true that it comes at a higher cost than ever before.

Today, more than 43 million Americans together owe $1.4 trillion in student loan debt. Even worse, a record 8.5 million consumers have defaulted on federal student loans, the least costly student loan product that and also offers the most flexible terms.

According to the federal Department of Education (DOE), default rates at some institutions are so high that they are now at-risk of losing access to federal student aid. Of the 10 institutions identified, as at-risk for this aid, seven are for-profit schools.

High default rates are usually one of two measurements: either 30 percent or more defaults over three consecutive years or a default rate of 40 percent over the last year. At these levels, DOE could impose sanctions. However a series of 2017 Departmental actions suggest a more favorable view of for-profit institutions than in the previous administration.

As a result, it would be prudent for all student loan borrowers to seize control of setting their financial houses in order. Defaulting on a major loan — like student ones — can bring a rippling and deteriorating effects. From declining credit profiles to the ability to land a job, or the higher cost of new credit, it is in the best interest of consumers to find out as much as possible on their loan and its repayment.

Just as with mortgages, student loan servicers can and do frequently change. And it is not always a certainty that as files and accounts were transferred that loan records are complete or up-to-date. But if borrowers take the time to make a list of their own personal records and payments, resolving loan issues with servicers could lead to a focused and fact-based discussion.

Federal student borrowers have a right to a repayment plan based on their income. No matter the circumstances, consumers can request their monthly loan payments be reviewed against their income. Affordable payment options are available even to student borrowers who have either missed payments or lost a job.

Even if servicer discussions prove unproductive in resolving loan issues, consumers still have state and government offices that can assist.

The Consumer Financial Protection Bureau (CFPB) has an online complaint form specifically for student loans. According to CFPB, 97 percent of consumers receive timely replies after filing a complaint. Copies of payments, correspondence and other related loan documents should be attached when filing a complaint. Consumers must also identify whether the complaint involves a federal or private student loan.

CFPB’s toll-free number (855-411-2372) is staffed Monday through Friday from 8 a.m. to 8 p.m. Eastern time. More information on student loans is also available at https://www.consumerfinance.gov/consumer-tools/student-loans.

Consumers can also contact their state Attorney General (AG) for complaint assistance. As with CFPB, most state AGs have online access to file complaints. In the metro area, consumers may contact the respective AG offices for assistance:

District of Columbia: https://oag.dc.gov/service/submit-consumer-complaint

Maryland: http://www.marylandattorneygeneral.gov/Pages/CPD/default.aspx

Virginia: https://www.oag.state.va.us/consumer-protection/index.php/file-a-complaint

“If you’re struggling to repay, lost your job, there are solutions — call your servicer,” noted Whitney Barkley-Denney, a student loan expert and Policy Counsel with the Center for Responsible Lending. “There are solutions.”

“At the same time, the Department of Education should do more to ensure that borrowers are well informed and paying under the best plan available to them,” concluded Barkley.

Charlene Crowell is the communications deputy director at the Center for Responsible Lending. She can be reached at charlene.crowell@responsiblelending.org.

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