As the 2018
school year comes to a close a whole new wave of high school graduates are
planning their collegiate future, current college students are preparing for a
well deserved summer vacation, with maybe a few summer courses in between the
spring and fall semesters.
And, as has been the trend
for the past decade or so, student loans are at an all time high for American
collegiate students. In 2016, a census confirmed that the average
student loan debt was around $37, 172.
Which, as someone with over $100,000(!!!) in student loan debt, I’m a
little jealous for those who average around that much.
Student loans have been
steadily increasing for the past decade, and it has and will continue to have
an enormous impact on all prospective, current, and recently graduated college
students.
The
Student Loan Landscape
To get a better picture of
the current standing of how student loans impact this generation, let’s take a
look at some facts. The most recent
statistics show us that;
- There is a total of 1.48 trillion
dollars of student loan debt in the United States
- Over 4 million Americans have
student loan debt, and of those 4 million Americans there is an 11 percent
student loan delinquency rate. Student loan delinquency is when someone is
90 days or more behind on their student loan repayments.
- Speaking of payments, the average
student loan monthly payment for students between the ages of 20 and 30 is
$351 based upon the 2016 national average for student debt.
Student Loan Delinquency
vs. Default
Student loan delinquency,
and student loan defaults are actually two different things. Student loan
default is when you are late on a payment and can be followed generally along
this timeline according to U.S News.
- 15-30 Days past due: At this
point, your loan servicer will begin to add late fees. Loan services can
also add up to 6 percent interest to your payments when they are passed
due.
- 31-90 Days past due: More late
fees get added on to your missed payments, as well as reports being sent
to the consumer reporting agencies. This can actually have an effect on
your credit, and will also resort to the service agency sending phone
calls and letters.
- 91-240 Days past due: More
additional late fees are added, and reports of being past due payments are
reported to consumer reporting agencies. Interest rates on opened credit
cards may begin to increase as well as difficulty in gaining other lines
of credit. Any pending car loans, mortgages, or apartment leases may be
rejected at this stage.
- 241-269 Days past due: This is the
final stage before student loans are considered to be default. At this
point, the loan lenders will send a final demand letter requesting the
entirety of your loan balance to be paid within the next 30 days. Previous other actions,
such as increased insurance payments and monthly loan reports will
continue to be sent at this time.
- 270 Days. It is at
this point in time that your student loans are considered to be default.
Once this time hits, there can be a number of occurrences.
For example, the IRS tax lien and its
implication. An IRS tax lien is when the IRS seizes items in order to
"encourage" those in default to pay off what they owe in this
instance, the IRS may seize your tax refund and use it to pay your default
loans.
Your entire loan price becomes due in full and the outstanding
interest is added to the balance. Translated, this means that you will be
charged in interest on the interest that you have not even paid yet. The loan
default will be reported to consumer reporting agencies, and severely damage
credit.
It has a lasting effect on credit reports, depending on how you
deal with your student loan default, it can remain on your credit record for up
to seven years. You will also lose your ability to apply for federal loans such
as those through the Pell Grant, loans which you do not have to repay.
Overall, when your student loans are in delinquency, there are
still options available for how to repay them. Once student loans hit the
default portion, those options become limited and the effects can have lasting
damage on the rest of your life and your financial stability.
Seizing Your Tax Refund.
Maybe the landscape surrounding student loan delinquency and
default is familiar to you. Maybe you have reached the stage in which your tax
refund has been seized to pay for your student loan debts. Either way, here is
some information that can help you whether you are or are not familiar with the
process behind seizing a tax refund.
The decision to remand your tax refund is made through the
Education Department using the Treasury Offset Program. This program allows for
federal payments to be intercepted partly or completely to pay off outstanding
loans.
According to Jay Fleischman, a student loan and bankruptcy attorney,
people who have student loans in default will receive a warning before tax
season stating that their refund
may be seized in order to pay of their
outstanding loans. In this notice, there will be instructions to review your
loan and try and offset the default.
If your refund is taken and you believe that it is something you
can contest, you can contact the Education Department. If there was an error
made in taking your refund, it will be refunded by the Education Department.
However, this type of error is not one that is commonly made, and contesting
the taking of your refund should not be the only plan in place when it comes to
default loans.
Jay Fleischman does say that making an injured spouse claim is
possible and may return your refund, if you filed taxes jointly with a spouse
and it is their student loan that is in default.
Unfortunately, if you have had your tax refund seized to pay off
default student loans, there are not many options available to have that refund
returned to you. According to Credit.com, the most suggested option is to work
on having your loans moved out of the default stage. This can be done by
contacting your loan provider and talking about possible payment plans.
One option that is commonly provided amongst
loan services is the customized monthly payment plan based on your income. Working
with a tax relief
professional to discuss
future options and customizing your loan payment plan is your best bet when it
comes to getting your student loans out of default.
Can You Declare Student
Loan Bankruptcy
It is possible to declare bankruptcy when it comes to your student
loans. However, this can possibly lead to even more damage being done to your
credit and is an overall very complicated process. You may have to pay
extensive court and legal fees as well. However, if you have already defaulted
on your student loans then your credit has already been impacted and declaring
bankruptcy on your student loans could be an option.
Rarely is bankruptcy an easy process, but this is especially true
for student loans according to Student
Loan Hero. In order to qualify for
declaring student loan bankruptcy, it is important to prove "undue
hardship" This hardship is oftentimes evaluated using the Brunner Test.
You must prove that you;
·
Would not be able to
maintain a standard of living if you had to pay back your student loans
·
The hardship would last for
a large portion of the repayment period.
·
You have made an honest and
recorded attempt of repaying your student loans before this point.
Although these options seem
reasonable, Leslie H. Tayne Esq. of Tayne Law Group, PC has explained "The
reality is that unless you can show an extreme hardship where you will never
work again and have attempted to pay back the loans and cannot, the likelihood
is that bankruptcy won’t be an option. As a result, the general advice given is
that student loans are not dischargeable in bankruptcy.”
Overall,
it is not recommended to file bankruptcy on student loans. The bankruptcy
system itself has been written in such a way that it does not allow for many
students who could prove their undue hardship circumstances to qualify and file
for bankruptcy.
Unless there is a monumental change in the education
system, it is unfortunately apparent that the student debt crisis is one that
is here to stay for the next generation. Hopefully, we will one day soon be
privy to a solution in which the cost of an education is not one that sends millions
of American students thousands of dollars into debt before most of them have
even legally had an alcoholic drink.
Until we hit that point, I, like many recently
graduated American college students, will be doing my best to pretend that my
loan repayments don't exist. Until the first of every month, in which m