For four long years (or more), you worked to graduate college and start your dream job. For many, achieving that dream was only possible with the help of student loans.
While we’d like to believe that those loans are just a tiny part of the picture post-graduation, the truth is that your student loans could directly affect or even cost you your first job. If you are a borrower in student loan default, you could find that certain jobs you want to pursue won’t accept you – or even that your current job has been jeopardized.
Before you start job-hunting, take a look at your student loan situation. By understanding the impact of student loan default, how it affects your career prospects, and how to come back from default can keep your career path on track.
How student loan default affects your career
Here’s a staggering number: nearly 7 million federal student loan borrowers are currently in default, according to the Wall Street Journal. This means those borrowers did not make any payment towards their loans for an extended period of time.
The process of defaulting begins on the first day of a missed payment. Your student loans are immediately declared “delinquent” until you make an effort to pay. Depending on your loan servicer, you may also be charged late fees that add up over time.
After 30 days, your lender can start reporting your missed payment to credit bureaus. With every monthly payment you miss, your credit score will begin take a beating. After 270 days following your first missed payment, your student loans are officially in “default.” The loan balance then becomes due immediately, regardless of past payment plans or forgiveness plans you may have signed up for.
At this point, you may begin receiving calls from debt collectors who may require you to pay high collection fees ranging anywhere from 18-40 percent of the loan balance.
If you have ever applied to a government position, you likely have been asked if you have defaulted on a student loan. This is because defaulting on your student loan prevents you from working many federal, state, and local government jobs. That includes enlisting in the military, working as a government contractor, or a position that requires federal security clearance.
But it’s not just government. Even some private sector employers use payment history as a means of screening potential employees. The Society of Human Resource Management reported 47 percent of employers ran credit checks on their employees with the aim of preventing criminal, unreliable, or financially irresponsible candidates from being hired.
Those employed in a field with a professional license or certification may also feel the impact of defaulting on a student loan.
In 22 different states, nurses, teachers, emergency technicians, lawyers, realtors, and more are at risk of having their licenses to work revoked. These are usually licenses that are overseen and issued by state agencies, making it impossible to get around or hide that you are in default on your federal loans. In Tennessee alone, Bloomberg reported 1,500 people with defaulted student loans had their licences suspended.
Future financial aid
When student loans are in default, you may have to put aside any plans to go back to school to further your career. Those who have defaulted on student loans are no longer eligible for future federal student loans, including Parent PLUS loans for children or Direct Unsubsidized loans towards a graduate program.
Wage and tax garnishment
If your employer doesn’t run credit checks, require a professional license, or prohibit working under student loan default, you may still feel the impact of a default in the form of a tax refund or wage garnishment.
It’s an embarrassing situation, but defaulting can lead to your employer or HR department receiving a letter from the Department of Education, informing them that your paychecks will be garnished by 15 percent. In some states such as California, creditors can even garnish the wages of your spouse if you are not employed. Social Security benefits and tax refunds are not safe from garnishment, either.
Defaulting can cause lifestyle issues as well. For example, in many states, the government can actually suspend your driver’s license or keep you from renewing it.
In addition, defaulting on a student loan can do massive damage to your credit that will take years of painstaking work to recover. It may also prevent you from signing up for a cell phone plan, applying for housing, receiving a small business loan, or being issued insurance.
Recovering your career after student loan default
Your best weapon against default is to never get there. If you are currently delinquent on your student loans and at risk of falling into default, the time to act is now.
Contact your servicer about a payment plan that works with your budget. You can request an income-driven repayment plan that takes into an account your current earnings and family size when determining your monthly payments. You may even benefit by refinancing your student loans to lower the interest rate or applying for deferment or forbearance until you get back on your feet.
If you are currently in default, you can recover by going through a student loan rehabilitation program. This involves making nine consecutive payments over a 10-month period in order for your loan to be reinstated as current. You may also apply for a Direct Loan Consolidation, which also puts your loan back in good standing.
Whether you’re behind on payments or seeing the impact of your default on your career, your best weapon is to have an open line of communication with your servicer. By understanding how a default can affect your career, you can stay motivated to tackle your student loan debt once and for all.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 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 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% 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 March 18, 2019, 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 0318/2019. 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@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|