(The author is a Reuters contributor. The opinions expressed
are her own.)
By Kathy Kristof
LOS ANGELES, April 10 Dental hygienist Randy
Honeycutt's $65,000 student loan balance has ballooned to more
than $200,000 because of back interest and default fees, a
cautionary tale about the perils of defaulting.
The 45-year-old North Carolina resident, who is convinced he
will die in debt, has a simple message for the millions of
Americans who are struggling to repay student loans: A default
will haunt you for life. Do whatever you can to avoid it.
There is a growing audience for this advice, as more
Americans are defaulting on student debt than ever before. A
recent analysis by the Consumer Federation of America shows that
defaults, officially defined as debts that are 270 days past
due, increased 17 percent to about 1.1 million loans in 2016.
Like Honeycutt, borrowers often learn the hard way that
defaulting triggers serious repercussions. For starters, the
unpaid balance of the loan, plus interest, becomes due
Borrowers then become ineligible for further financial aid,
deferment and forbearance programs. Their loans go to collection
agencies that can assess fees as high as 25 percent of the
outstanding balance, including interest.
The accumulated principal, interest and loan fees are
subject to additional interest charges and more penalties if you
delay repayment or default again.
"I feel like I’m watching the National Debt Clock, with the
numbers spinning completely out of my control," Honeycutt said.
There is little you can do to avoid repaying. The U.S.
government can seize wages, tax refunds and other benefits, all
without getting a court order, said Persis Yu, a staff lawyer
with the National Consumer Law Center.
Worse, she said, student loans generally are not
dischargeable in bankruptcy, so this debt can follow you to the
Still, these tips can help you to avoid ruining your
financial life with a default.
* Track your own loans
The government used to help late payers avoid default fees
if they made good on their payments within 60 days of receiving
a notice of default, but it rescinded this guidance in March.
So the only way to avoid default is to track your own debt.
If you have not received a bill when you think you should,
contact the lender.
If you have government loans, you can find your details at
the National Student Loan Data System (bit.ly/2nbDY1P).
* Ask for forbearance
If you cannot pay your government-backed loans because you
are seriously ill, lost a job or went back to school, you can
defer payments. If you have another financial hardship, you may
also be able to put loans into “forbearance,” which also
postpones payments. But interest is likely to accrue on any
unsubsidized loan while payments are on hiatus.
* Request an easier payment plan
You may be able to sign up for one of the government’s
income-contingent repayment plans, such as PAYE
(pay-as-you-earn) or REPAYE (revised pay-as-you-earn), which set
your payments at a percentage of discretionary income.
In some cases, you may have to pay nothing, but you do have
to update your income information every year. Failure to do so
can get you knocked out of these affordable repayment plans.
For private loans, you must deal directly with the lender.
* Get professional help
The toughest situations are where a borrower has such an
unstable life, either because of medical or family problems,
that he or she cannot pay, no matter how seemingly affordable
the repayment plan, Yu said.
These borrowers should seek credit counseling, but they may
have no choice but default. Yu's only advice here is to remain
in default until your situation stabilizes enough that you are
certain you will never default again.
That is important because federal rules give student loan
collectors the right to assess a second round of penalties and
interest with each default. Multiple defaults can cause your
loan balance to balloon.
Honeycutt, who defaulted twice due to job losses, can attest
“If they would come up with a payment that I could afford, I
would be happy to do it,” he said. “As it is, given my ability
to repay, $200,000 might as well be $2 million.”
(Editing by Beth Pinsker and Lisa Von Ahn)