Top 5 Reasons You Should Never Default on Student Loans with Jay Fleischman

Default Student Loan help Jay Fleischman Consumer Protection Lawyer - Episode 11

Can you be arrested for not paying student loans? No, not directly.

However, not paying student loans can have far-worse implications than not paying credit cards or your mother-in-law.

Jay Fleischman, a lawyer who concentrates on Consumer Protection, brings us the 5 reasons you should never default on your student loans.

GAMIFY THIS EPISODE

The interview was recorded before the story broke about the Houston man being arrested for not paying a student loan for 30 years. As we go through the Top 5 reasons you should never default on student loans I want you to punch yourself in the face each time we say you can be arrested for not paying your student loans.

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Average student loan is $28,000. Many of those in debt for education didn’t even graduate.

20% of student loan borrowers don’t even realize they have a student loan. #crazy!

Only 17% of student loan borrowers take advantage of income dependent repayment programs.

 

Top 5 Reasons You Should Never Default on Student Loans

#5: Lawsuit and Judgements

When you go past due on a debt, the creditor can file a lawsuit against you. In the case of Federal Student Loans they can file a federal lawsuit on you.

Scary facts:

90% of private student loans have co-signers. There are two people responsible for full repayment of that debt

Over 96% of people sued for defaulting on a loan of any sort (student loans, credit cards, etc) do not take any action whatsoever. They don’t answer the papers or go to court so the judgement goes through uncontested. The judgement passed uncontested and moves us to the #4 reason why you NEVER want to default on student loans…

Saving grace: Federal student loans do not go into default until 270 days past due. That’s 9 months.

#4: Garnishment and tax refund offset Administrative Wage Garnishment, tax refund offset

Assets can be frozen, liens put on real estate, wages can be garnished and tax refunds can be confiscated when you lose a lawsuit or judgement for unpaid debts.

Administrative Wage Garnishment: Up to 15% of your disposable income can be taken in the form of wage garnishments.

There are opportunities to get out of default and negotiate a new payment structure. Refer to Jay’s website Consumer Help Central for free resources and information

#3: Inability to qualify for new federal student loans

A lot of people go through college, get a job, and the employer offers a promotion or raise if you complete extra education courses. If you want to improve your own skills but don’t have the funds to cash flow it then a default on your record would prevent you from securing the funds needed to obtain continued education.

More commonly, a parent could not obtain student loans (Parent Plus Loan) for their children when a default is in force.

#2: Increased collection costs

Interest rates on defaulted federal student loans are approximately 24%.

Private student loans will peak at whatever is stated in the promissory note.

They may also come with additional penalties and you could be held responsible for paying their lawyer’s collection costs.

#1: Bad credit

Not only do you wreck the ability to obtain new student loans but a default on your credit report can keep you from buying a home, refinancing a mortgage, or renting an apartment.

Jay Fleischman on building credit: You don’t need to build a house on the land but don’t dig a pit in the middle of the lot.

Note from Steve, host of No Debt, No Credit, No Problems: I don't believe you should focus on building your credit. HOWEVER, I do believe you should do all the things it takes to be creditworthy which is paying your bills and debts on time. Defaulting on student loans puts your creditworthiness in the gutter and should be dealt with post haste!

 

profile pic - Jay-Fleishman (landscape)

 

For more information about Jay Fleischman, contact him on his website, follow him on Twitter, or listen to his podcast (this episode is specifically about the Houston man arrested for student loans).

 


ALSO IN THIS EPISODE

TAXES: Andy Magnus, an ex-IRS agent, shows us how to get tax breaks when getting an education. Contact Andy Magnus for one-on-one business or personal tax advice.

HABITS OF THE RICH: I share TONS of data from Tom Corley's Rich Habits and how we can use it to reinvent ourselves in 30 days. Read the article here, download Tom's free Goals Report here.

You may also want to read about “The Birthday Call

LISTENER EMAIL: Should I self-direct my retirement to save on fees or work with a financial advisor? Listen here –> [53:31]


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