Although getting a college degree is a big dream for many Americans, 44 million walk away from school with student loan debt.
And, nearly ten percent of those people end up going into default. What’s more, the consequences of default can haunt them for years (or even decades) later.
One man found that out the hard way. His defaulted student loans ended up catching up to him in his retirement, resulting in garnished wages and financial hardship.
Struggling to pay back debt
Jamie Chastain graduated from the University of Southern Florida with a master’s degree in liberal arts in 1982. He left school with just $12,500 in student loans, but struggled to find a job.
As he was struggling to make ends meet, Chastain also could not keep up with his student loan payments. It took nearly ten years before he finally found steady work as a media technician at a local community college.
Defaulted student loans
Because Chastain defaulted on his student loans, the government garnished his wages. They took out approximately $400 a month throughout his career to pay his student loans.
Due to high interest rates, his student loan balance ballooned. Chastain says he has paid back nearly three times the original loan balance through wage garnishment. 30 years later, he was still making payments.
Can social security be garnished?
Chastain found out that his nightmare was not over, even when he retired.
At the age of 68, the government continued to take money from him, this time by garnishing his Social Security checks. The government took out $177 a month from his Social Security benefits for over a year before Chastain paid off his debt.
And Chastain certainly is not alone. According to Fortune magazine, the government has garnished the benefits of 114,000 Americans 50 and older because of defaulted student loans.
What’s more, since 2001, the government has collected about $1.1 billion by reducing Social Security checks. However, doing so left thousands of retired and disabled borrowers below the poverty line because of their garnished benefits.
What happens when you default
Federal student loans go into default when you have not made a payment in 270 days or more.
Once that happens, the government can seek repayment through various means, including garnishing your wages, taking your income tax refund, or reducing your federal benefits like Social Security.
And going into default has other serious consequences, as well. For instance, you lose out on federal student loan perks like the option to enter into an income-driven repayment plan, forbearance or deferment.
Additionally, your lender will report your delinquent loans to the major credit bureaus, harming your credit and hurting your chances to get approved for a mortgage or car loan down the road. Your lender can also send your debt to collections.
Going into default may increase your student loan balance due to late fees, additional interest, court costs, and collection fees. Your balance will ultimately become much higher than it originally was.
What to do if you are in default
It can take years to get out of default once you enter it. So if you are already in default, it’s important to take action as soon as possible to keep your loan balance from ballooning and your credit from getting ruined.
There are three options for fixing your default situation:
1. Pay in full
To get out of default and rebuild your credit, you can pay your entire loan balance in full to your lender.
This option may be a good idea if you have been in default for a while and now have a lower balance due to wage garnishment. You can then use your savings to pay off your loans and get back on track.
2. Loan rehabilitation
Loan rehabilitation is an option if you cannot afford to pay off the balance in full. Under this process, you contact the lender and agree to make nine on-time monthly payments.
Depending on your situation, you may be able to get your payments reduced to a percentage of your discretionary income.
While you likely will need a co-signer because defaulting can harm your credit, refinancing is another option to get out of default. You can take out a new loan through a private lender and pay off the defaulted loan in full.
Take action now
If you have defaulted student loans or are in danger of defaulting on your loans, reach out to your lender as soon as you can and explain your situation.
By working with your lender, you may be able to enter a rehabilitation program or get a reduced monthly payment that makes your loans more manageable. Going that route can salvage your credit and help you save money over the long term.
For more information on what to do if you have delinquent student loans, check out this article on preventing and dealing with default.
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|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.64%4||Undergrad & Graduate|
|1.98% – 8.55%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.