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