Expect student loan guarantee agencies to charge loan defaulters higher fees. This is after President Trump rescinded the student loan guideline established during the Obama administration.One of the criticisms leading to the rollback is the “lack of public input” on the issue. This statement appears on the two-page “Dear Colleague” Letter of the current administration.
The Obama administration issued a memo in 2015 preventing agencies to collect high-interest rates on student loans that are long past-due, provided that the borrower entered the government’s loan rehabilitation program within 60 days of defaulting.
Back In 2010, former U.S. President Obama thought of solving fed student loan problems by reforming its guidelines. They created expanded programs with monthly payment caps based on a percentage of the borrower’s monthly income. The reform aimed to solve the unmoving fed student loan problems and make defaults lesser.
Sadly, this was not the case. Even with the many different payment methods available, millions of fed student loan consumers owed $ 1.3 trillion in 2016. More than a million. Since 2015, 1.1 million more defaulted on their loans last year.
Even with the income-driven payment schemes, why is this happening? A possibly big reason is that almost 50% of the college graduates believe that their student loans can be forgiven in the future. While only very few are qualified for student loan forgiveness, many students are borrowing more that what is necessary in the belief that they can soon be forgiven of their debts. The wrong sense of entitlement could possibly be a very damaging cause.
Another reason may have something to do with the increasing number of students not completing their college degrees. Cappex.com’s Mark Kantrowitz said that those who “drop out of college four times more likely to default a loan”.
How damaging can a loan default be?
All new federal student loans starting 2010 have been issued by the Department of Education. Students who have taken these loans need not worry about the new regulation. The department does not charge default fees given these individuals quickly work on fixing their defaults.
Defaulters with loans from the FFEL (Family Federal Education Loan) Program may need to think more carefully. This particular bank-based program has nearly half of the in-debt Americana who are on default. Not making good on their defaults promptly may cause further damage.
Preventing a loan default in not rocket science. Naturally, you base the amount of money you borrow your repayment option on your financial situation. Over-borrowing would mean you would have to pay that money back, with interest. Be wise and talk to a lender with your repayment options. They will help you find better options to avoid default.