College students who apply for all types of loans in order to pay for their education are often forced to apply for un-subsidized Stafford loans due to the high costs of college tuition. These types of loans are available to financially strapped students and students who have been able to prove they are unable to pay for school any other way. Interest on Stafford loans is figured from the first payment and continues until the last payment. The best part of these loans is that a student’s repayments can be put off until after graduation.

Anyone applying for a student loan must also remember that interest accumulates during deferment. Students can opt to make interest payments while in school or wait and begin making payments when they are out of school, but it’s important to remember that they may be at risk of defaulting if they are unable to find work after college. Defaulting on student loans is a lot like defaulting on taxes. If someone files for bankruptcy, student loans, like tax debt, cannot be claimed on bankruptcy filings, which means collections and wage garnishments.

When a borrower doesn’t pay for more than two months, they are considered in default. The lender will contact the borrower to remind them that payments need to be made and, in most cases, will offer deferment options. If a borrower is combative and simply refuses to pay, collection proceeding begin, which will cause wage garnishments, tax refunds taken and credit reports will reflect default. That, alone, will make it impossible to get any type of credit. The worst part, interest continues to accumulate and your loan gets bigger and bigger, making it nearly impossible to pay later on when the borrower may finally be able to being repayment.

When a borrower is in default, the lender is legally able to take 15% of any wages earned each month to repay what is owed. If the borrower holds a professional license, that, too, can be revoked. In extreme cases, the lender will take legal action against the borrower where the borrower is ordered to either begin making payments immediately, or ordered to pay the amount in full. The latter is ordered on rare occasions. This rule applies to all loans, including Stafford loans.

So, what can you do before going into default on a student loan?

Consider carefully all of your options before going into default. If you find that you are just unable to make payments, or are only able to make small payments, you should get in contact with your lenders to make arrangements for deferment or forbearance so you do not end up in default. There is nothing worse than owing money to the government, and many student loan funds come from the government.

Daniel Stoica Accounting Professional