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This Is What Happens When You Default On Your Student Loan Debt

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College is an amazing time. You make lifetime friendships, explore new hobbies and if you’re lucky, you might even learn a thing or two. But now that your diploma is framed on the wall, and your graduation robes are hung up in your closet, college is officially in your rearview mirror. Or is it?

Not so fast. How are you going to pay for that hard-earned education?

At this point in your life, student loan debt is likely the largest bill that you’ve ever been responsible for, let alone have your name on. That can be extremely intimidating (and scary!), but there is good news, young grads: You’ve got six months from the moment you walk across that stage and throw your grad cap in the air until you have to start making student loan payments.

This six month ‘praise be!’ time frame is called the Student Loan Grace Period. According to USA Today, the Grace Period is meant to help a new grad secure financial footing prior to paying back the (average) $40,000 they borrowed to pay for college. It’s understood that walking off the graduation stage, and straight into adulthood is not easy and will definitely come with challenges for fresh grads, so you have a little time to get your footing.

Long story short, the answer above is no – college is not totally behind you. But you do have six months, so don’t get too excited about your new paychecks and spend all of your money on weekend getaways. While you’re busy moving to a new city, decorating your first apartment, or applying for jobs, the grace period deadline will be here before you know it and the last thing you want to do is start off your new life defaulting on your student loans.  

What it Means to Default on Your Debt

According to the Office of the U.S. Department of Education, if you don’t make a payment on time or if you miss making a payment altogether, your loan is delinquent and you may pay a late fee. A loan remains delinquent until you make up the missed payment(s) or receive a deferment that covers the period when you were delinquent.

Falling behind on payments can cause federal loans to enter default, triggering expensive fees and collections. If you miss several payments, federal loan borrowers may also seize your income from work, tax refunds and possibly social security benefits. And, you guessed it, will be a major ding to your credit score that will take months, maybe even years, to rebuild.

Soooo I Defaulted. Now What?

First thing’s first. Don’t panic! According to Student Debt Relief, you’re not alone. In 2017, delinquent loans consisted of 11.2% of the total US student debt. So to help yourself get back on track, follow these key steps.

  • Set up automatic payments with your lender literally right now. This is the best way to avoid ever paying late. Doing so could also earn you a reduced interest rate (usually 0.25%), which could save you hundreds of dollars, maybe more, over the life of your loan.
  • Stop spending, start saving. If you wasted away the six month grace period going out to expensive drinks or exploring your new city, it’s unfortunately time to break the spending habit. Depending on what you qualify for, you’ll pay the same amount monthly moving forward. If you know you have to pay $200 in two weeks, maybe pass on those new trendy sneakers (for now!).
  • Consider refinancing. Even if you don’t currently have the credit score needed to get a reduced rate, knowing that the option to refinance exists is a good incentive to make sure you don’t miss any payments.
  • Look into additional payback options. For example, a growing number of companies are helping employees squash their student loans as an added perk, like a 401(k) and health care. Try talking to your HR department to see if this is something they have available, or are interested in trying out.

Depending on your profession, you may also qualify for special loan forgiveness options that aren’t available for everyone. Examples include the Public Service Loan Forgiveness program, which awards student loan forgiveness to those who qualify (must work in a public service agency or for the government) after 10 years or 120 payments. So if you’re a teacher, doctor, lawyer, or work in the public sector, make sure to do your research!

It’s Not All Downhill from Here – We Promise!

If you’re struggling to pay the minimum on your student loans each month, just remember you are not alone! 60% of all college grads graduate with some sort of student loan debt, and the average debt per graduate in 2016 was $37,172 (Student Debt Relief).

It’s safe to say that out of the millions of people that graduated from college this year, you can bet your bottom dollar (literally) that most of them are worried about paying back their debt as well. In fact, only 24% of millennials feel like they make enough to pay for bills and save for the future.

So before you get all doom and gloom over the next years on making monthly payments, remember that there are resources and support to help you pay down your debt along the way. Remember, the end goal isn’t just getting rid of your debt, but making sure you’re doing all that you can for a financially healthy future. Turbo provides one of the best free credit reports, so check out your score today!

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