Monday, July 27, 2015

Facing the bear: student loan default (HELP!)

Student loans have been a hot button topic for some time now. According to estimates by the Consumer Financial Protection Bureau (CFPB), existing student loan debt is around $1.2 trillion and is continuing to grow at alarming rates due to the increasing cost of higher education. Unfortunately, as the cost of education is increasing, earnings aren’t increasing as quickly.

Still, that shouldn’t stop anyone from going to college. Statistics show that those who have a college degree on average earn approximately 114% more than those without a high school diploma and 50% more than high school graduates. But, it is still a problem as many graduates are struggling to pay their student loan debt.

There are options, such as Income-Driven Repayment plans, but for many the information available is difficult to understand and can be much more difficult to navigate. Or, for many like my younger self, the whole situation is so overwhelming that they just bury their head in the ground and ignore it all. That’s what I did, and the consequences were even more difficult than if I would have faced my student loans head on. Here’s my story –

I started at Trident Technical College to get some of my general credits out of the way in a less expensive manner than starting at a four year college or university. So, I started off on the right foot with my higher education.

In 2005, I transferred to the College of Charleston. I lived at home and commuted to school, which also helped to keep my education costs lower than average. However, while applying for my first student loans, I found out that I qualified for $10,000 for the year. I was 20 and wasn’t very financially savvy at the time, so, of course, I took it… ALL.

I could use that money for tuition, books, lab fees, a brand new laptop, and of course new clothes (because those were obviously needed school supplies, right?). Really, I had no need for that much money since I was still living with my parents and working part-time while in school, but I took it all anyway. I didn’t qualify for as much for the following years I was in school, and even had to take a semester off due to not being able to hammer down financial aid in time to register for classes.

In my senior year, I got pregnant. I took another semester off right before my last semester of college, but did go back and graduated the summer of 2009. It was not a good year to graduate from college as it was during the recession; however, all of my finance classes were extremely interesting with everything that was happening. Now I had graduated college with a shiny new Bachelors of Science in Business Administration and about $27,000 worth of student loan debt, so now what?

As I graduated right smack in the middle of a recession, I couldn’t find any jobs where I could use my degree, so I kept waiting tables as I had since high school. Money was pretty tight as tips weren’t great during the recession and I had a 1 year old at the time. His father was working, but had some personal issues and lost his job soon after I graduated. We had very limited income and my student loans were last on the list of things we needed to pay. I didn’t pay any attention to them and basically pretended they didn’t exist. I’m pretty sure they were calling me for payment, but I had other creditors calling as well and just didn’t answer the phone. I think I knew that I could probably call and try to get on a deferment or forbearance, but I felt like I was already so far behind and didn’t want to make the embarrassing phone call. Looking back now, I wish I had.

In 2010, things looked up and I was hired as a temp here at Family Services, Inc.; although, soon after I became a single mother with a toddler. Again, I had very limited income and was just trying to make ends meet. I still played the ostrich and kept my head buried in the ground when it came to my student loans. In the beginning of 2011, my HR manager came to me with a name and a phone number and said that I really needed to call this person because they were threatening to garnish my wages. That’s when I woke up and realized that my student loans were in default.

At this point, I hadn’t paid my student loans EVER, so they had defaulted and my credit score was around 435. The collection agency had also added penalty fees, so it wasn’t pretty. I called the collection agency and was offered a rehabilitation program. With the rehabilitation program, I would have to pay nine on-time payments in a 10 month period. Once I did that, all of the penalty fees would be wiped away and my loans would be reported as current. Another benefit, which wasn’t explained at the time but I know now because of research and training have done since then, was that all of the default would be removed from my credit report. That all sounded great, however, in a rehabilitation program, the borrower doesn’t get to receive the benefit of Income-Driven Repayment plans—so my payment was quite high compared to what I was making at the time.

I was still a single mother trying to live on my own on a $28,000/year salary. I made too much to qualify for public assistance like SNAP (food stamps) and Medicaid, so the $245/month payment was really hard for me to manage.  I knew the benefits were significant, so I stuck with it. Unfortunately for me, the Department of Education was going through a transition, so my 10 month rehabilitation period turned into about 14 months. Eventually though, my loans were sent to a servicer, placed in current status, and I was able to enter into an Income-Based Repayment plan to lower my monthly payment to $21.

If I hadn’t called the collection agency, my wages could have been garnished, along with my tax refunds. Even in South Carolina, the federal government can garnish wages and tax refunds, so I would have not been protected. Fortunately for me, I manned up, pushed away my pride, and faced the problem that I created for myself. It was a difficult road, and, as they say, hindsight is 20/20. Knowing what I do now, I would have done everything much differently and not caused myself the unnecessary hardship I had to endure.

That’s why I want to tell my story. I want others to know that there are other options, and there are legitimate agencies and people who can help navigate the intricate student loan realm. I am now one of those financial counselors who knows the ins and outs of student loan repayment. I’m here to help with knowledge from personal experience and formal training. Take it from someone who’s been there – it’s a much better route to face your student loans and repayment earlier rather than later.

Need guidance? Contact us at 843.735.7802 or info@fsisc.org.

By Kristin Bastian, Financial Education Manager

No comments:

Post a Comment