Are you at risk of student loan default? | Smart Switch: Personal Finance

Ana Helhoski

Student loan default starts the same way for everyone: a late payment. Then another. And other. Until nine months have passed in total (about 270 days) and your loan defaults.

Three months later, it gets much worse.

A debt collection agency now holds your debt and you owe them the full balance of your loan along with late fees and collection costs. They can garnish your wages and withhold your tax refund. Your credit is damaged and you are no longer eligible for financial help. Meanwhile, interest grows on your loan balance.

A total of 26.6 million people are expected to resume student loan payments on May 2 after being paused since March 13, 2020, and government agencies, advocates and lawmakers fear the numbers of default of borrowers may increase.

Stakeholders care more about recent graduates, students who did not finish their studies, and those who had not paid before the suspension of payments.

It will take several months to see whether those borrowers — about half of student loan recipients — will default, says Michele Streeter, director of policy and advocacy for the Institute for College Access and Success, or TICAS, a nonprofit higher education organization. profit. research organization.

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