Myth #18 “UnpaidStudent Loans Disappear After 7 Years.”

FACT: Past due student loans will not fall off your credit report after 7 years. For those who have not taken their student loans obligations seriously, they are now paying the price. Under most conditions, student loans are not forgiven and cannot be included in a bankruptcy. These loans can also stay on credit reports much longer than normal default debt.

Think Twice Before Applying for Your Student Loans

Students are emerging from college mired in debt that cripples their ability to pay bills once they graduate. Student loan debt, if not prepared for carefully, can limit a graduate’s ability to accept their dream job if it is accompanied by a low salary. Parents and students should sit down at the beginning of college and do research into future earnings in the student’s ideal job field.  A good site to check out is: www.Payscale.com.

Some experts advise that your (or your child’s) TOTAL student loan debt should not exceed what your student can expect to make in their first year out of school. However, be sure to take into account unpaid internships, low starting salaries, volunteer experiences and possible unemployment when planning this far ahead.
Remember, starting 6 months after graduation, the student loan bills begin to arrive.

The Health Care and Education Reconciliation Act of 2010 went into effect on July 2, 2010. This newer Act made changes to federal student loan financing and paying them back, but doesn’t apply to loans prior to that date. There is a provision in the income-based repayment plan that applies to those with government student loans. If your total student loan debt is the same or greater than your annual salary, you may pay less than 15% of your income. If you are earning below 150% of the poverty line, you will pay nothing until your finances improve.

Surprisingly federal funding for financial aid has increased in recent years. We were surprised to see how beneficial filling out the FAFSA was for us when our daughter was accepted to college. Federal aid does require the FAFSA form, which can be time consuming and complicated to fill out. Many of our friends told us not to bother as it was a waste of time. We chose to listen to the college Financial Aid Department and logged onto www.FAFSA.gov. It was a time-consuming effort to complete but the few additional hours ended up paying off substantially. A few months later, we received a letter from the college stating she qualified for grants/scholarships which were not loans to be paid back but actual free money towards her tuition! In addition to this money, she received low-interest rate loans through the government. I encourage you to complete the FAFSA, it could be beneficial for your son or daughter.

For some student, student loans may be the only account on their credit reports. It is important to make sure you comply with the terms of this loan. Student loans are to be taken seriously and you should make every effort to pay them or contact the lender to make other payment arrangements.

Lenders have recourse if you default on student loans. The most common recourse is your tax refund. The IRS can take your federal income tax refund as well as your state income tax refund until the loan is paid.
Other means of lenders: paycheck garnishment, government and private lenders can sue you, you will not be eligible for federal loans such as FHA or VA loans until your loans are paid and eventually your social security benefits could be garnished. There is also no statute of limitations on the age of the student loan debt regarding repayment.

If you are in need of assistance with your credit and credit score, we offer a complimentary 15-minute telephone consultation simply by calling our office.   We also offer an in-house comprehensive Credit Consultation where we will review and analyze your credit reports and assist you with a personalized action plan to maximize and manage your credit scores. You will leave with a new understanding of your credit profile and new path towards a higher credit score.

Call Credit Strategies Today at
480-502-5554

Legal Disclaimer:
The advice provided is for informational purposes only. It is not
to be used as legal counsel or legal advice.