It is never good to get behind in your student loan payments. Additionally to default on the loan can have consequences that may last for years, be difficult to climb out of, and badly damage your credit. The fact is that people do get behind on college loan payments and people do default on college loans.
On July 11, 2016 U.S. News writer Farren Powell looked at colleges that will pay graduates’ loans. This type of program is called a LRAP. A LRAP will give graduates who have met set criteria money to help them make their loan payments.
Powell notes that Christian based colleges are more likely to give out an LRAP than other schools. "The majority of schools offering these programs are private Christian colleges," says Peter Samuelson, president of the LRAP Association, an Illinois-based company that services loan programs for more than 100 colleges.” It is felt that the LRAP can be used to entice students to attend their colleges. Adrian College in Michigan was able to increase its enrollment by 18% by using the LRAP as a marketing tool. The number one criterion for eligibility is income.
The Wall Street Journal has discovered that over 40% of the people who owe college loans are behind in their payments. It also notes in a 2015 article that seven million people are in default of their college loan. That means that at least 270 days have passed without a payment and that fess are owed, as well. That equates to a 17% population who has defaulted on the loan repayment commitment. The article, “Student Loan Reckoning: 7 Million are in Default” further states, “The latest figures highlight how student debt—which has tripled over the past decade to $1.19 trillion, according to the Federal Reserve Bank of New York—has quickly become a crushing burden for more Americans. “
Tufts University was able to include undergraduates in their LRAP program, as of 2008. Tufts determines its LRAP designations based on type of employment the graduate holds. The Tufts LRAP program requires its graduates to be employed in either the nonprofit arena or the public platform to be eligible. Consider what can happen if you fall behind in payments or default.
The Elephant in the Room: Jail Time
There are some consequences if you don’t use a LRAP program or you can’t pay your loan. If the student loan debt is high enough and the time of no payments remitted has been long enough, yes, you could have a court case, which may land you in jail. Both of these criteria would need to be extreme for you to serve time.
The Federal Government states that student loan debt holders do have ways to make a delinquent account, which they define as less than 270 days late, back to current status. Obviously, the best thing to do is to pay the loan and fees back as quickly as possible. But this might not always be possible.
A deferment or forbearance may be allowed in extreme situations such as job loss or severe injury. There will be paperwork and documentation required when you apply for this financial hardship consideration. These two options do not clear the debt, but postpone the payments or actually decrease the paper amounts. Ultimately, the LRAP may save you from all of this turmoil.
Tardy Tenders: Delinquent Payments and Defaults
LRAP can help you if you are worried about employment after graduation. On the very first day that you miss a student loan payment, your loan status is classified as delinquent. You can be charged late fees and will hold that delinquent status until the payments are caught up to date and the fees are paid in full. You need to call your servicer before that missed payment and let them know that you cannot make your obligation. Always update the servicer when payment difficulty is pending.
When one month has passed without your scheduled payment be remitted, the lender can report your missed loan payment to any or all of the three credit bureaus: Equifax, Experian, and TransUnion. This negative report will occur monthly until you have satisfied the amount owed and the fees owed, as well.
The point at which the college loan is moved from delinquent to default classification is at 270 days or more depending on the lender. This 270-day mark is important because the entire loan and all fess are now considered owed to the lender on day 270. Fees can run at an alarming rate of 18 to 40% of the original amount of the loan depending upon the unique lender.
Rather than worry about defaulted loans or late payment loans, you may want to consider attending a school that has a LARP program.