The hundreds of thousands of people who have been laid off in the auto, mortgage and retail industry are now at risk of defaulting on their home mortgages, credit card bills and student loans. And, unlike times past, walking away from student loan debt is not that easy. Financial pressures have wrecked marriages, destroyed mental health and have driven many to suicide.
Danilo Linarte was in trouble. His loan situation and financial problems were putting a massive amount of stress on his family. “The financial hardship was overburdening my family to the point of separation and divorce,” said Linarte. Linarte contacted a tax and debt consolidation company after being hit with one 15% wage garnishment on a defaulted student loan, while still paying on another education loan.
According to a JK Harris press release:
Linarte was already making payments on another student loan and his budget did not afford him the ability to make a down payment and the monthly payments the collection agency was demanding from him for the defaulted loan. Facing financial hardship, JK Harris set to work with Linarte’s creditors to negotiate a repayment plan.
One loan servicing company has turned defaulted student loans into a revenue stream for student loan consolidation companies. According to the Florida-based company’s press release:
Eventually, unpaid defaulted student loans can have long-term consequences beyond just the loan directly. For example, the students' credit report will take a hit. Once the loan has been forwarded for collection the student’s wages can be garnished and their federal income tax refunds can be withheld. You also lose your eligibility for other types of federal loans including student loan consolidation. Given the size of most student loans, it's usually impossible to repay a defaulted student loan in the single payment that loan collectors may request. There are mechanisms for repaying defaulted student loans and for both regaining your eligibility for more student loans and improving their credit score. (Student Financial Advisors, press release)
The political backlash against student loan defaults began in the Nineteen Eighties. According to the New York Times:
[A congressional] plan call[ed] for new regulations that, starting in 1990, would deny aid to students in schools where previous borrowers had a default rate of 20 percent or more. If that policy were in effect today, the plan would affect nearly one-third of the 7,300 post-secondary institutions participating in the Guaranteed Student Loan program. Most of those affected would be proprietary vocational schools, community colleges, private black colleges and other institutions serving low-income students. (NYT, 12-2-87)
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