So you have finally made it out of school and you are just starting to make your way into the real world. Unfortunately you may have many payments due on your school loans and it feels like you will be repaying them for your entire life. While surfing the internet you run into a website that offers information about consolidating your school loans, it promises a low rate and quick turnaround.
Discipline and organization is what it is going to take to pay off your school loans. But what happens if you are one of those people that got the degree and have had a hard time getting steady employment or now that you are out of school the loan payment is too high for you to pay? Many people look at using school loan consolidation as a way of putting off the day of reckoning for paying for their degree. Many make horrible mistakes thinking these types of debts are the same kind that they have with their credit cards or car payments. These are not debts owed to a private company, these are owed to the federal government, and the federal government has ways of punishing and collecting that your bank can only dream about. I will outline some of the problems you could run into if you ever think about treating these debts like anything else you have in your financial life.
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1) Defaulting on Your Loan - One of the biggest warnings I can give is to do anything in your power to never default on you loan. If you do you could be forced into paying the full amount of your loan balance right away. Obviously that is not going to be possible for you so the government will do whatever they have to do to collect their money. This may include garnishing your wages immediately or taking your next federal tax refund. They can even sue you and make you pay for all of the court fees and costs of attorneys they use to sue you. Most likely you will never be able to apply for another financial assistance program again, which could be detrimental if you ever want to go back to graduate school. The punishment however does not stop there though because the default is quickly reported to all of the credit bureaus out there which will eventually affect your entire financial life.
2) Collection Cost and Late Fees - The government can also tack on a late charge after your loan is 30 days past due, which is no more than 6 cents per dollar of the loan. Let me put this in perspective, if you have a $15,000 loan and you end up being 30 days late then there can be a $900 late fee.
3) Credit Bureau notice - As stated above they are mandated to send in your account activity to the credit bureau companies but they are also required to send you a notice 30 days before they report so you can contest the validity of the late payments. If you do see a problem with what was sent to you and you believe a mistake has been made then immediately contact the credit bureaus as well as the government.
4) Deferment or Forbearance - Deferment and forbearance are a way of postponing or delaying your payments because of certain hardships or special situations. A deferment will allow you to stop making your payments temporarily. For example, if you have to go to war, are enrolled part time at school, or are unemployed. Forbearance will help stop your payments for now until you are done with school or find a new job. You can also extend the life of the payments citing the hardship you are going through now if you can prove it. The key is to stay on top of the situation you are in and communicate with the government regarding your loan. You are not eligible for these two benefits of having a federal loan if you are currently in default on your loan, so make sure that you do everything possible to make payments on time in case of financial trouble.
5) IMMEDIATE REPAYMENT - If you have lied about anything you put down on your paperwork the government can demand that you repay the entire amount of the loan instantly. Especially if the false items allow you to get a better consolidation than you should have received. Again if you default on your loan than the payments will start immediately and the government will do whatever they can to collect it.
The best advice we can give you is that if you are going to consolidate your student loans make sure you know what you are getting into, because the penalties can be severe. Stay on top of what your options are for your school loan consolidation. If you are in a tough financial situation then start looking at postponing your payments through the hardship clauses or deferment program. Know that you are ultimately responsible for finding out which program will work and repaying your loan. The government is just interested in receiving their money regardless of what you are dealing with in your current circumstances.
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