Updated: Jul 3
If you have ever struggled to make payments on your student loan or wondered how you would be able to pay it off, you are not the only one in that boat. Reports have shown that a large percentage of United States residents who have taken out a student loan at one point or another found it challenging to pay back.
A study on student loan default carried out by Brooking Institute has shown that forty percent of Americans with existing student loans will not be able to service the loans or pay them back. These group of people are predicted to become student loan defaulters by the year 2023.
There are many reasons why the number of student loan defaulters increases every day. The reasons may be peculiar to the students, but the aftermath of defaulting in the repayment of your student loan may be grave, possibly increasing your debt obligations.
When you get to know the reason behind people defaulting on student loan payments, you will be better equipped to avoid doing the same. Some of the reasons why students default in their loan payments include:
1. Forgetting your grace period
Student loans come with a grace period, after which the individual is expected to commence payment. The time duration of such a period is not fixed, but some people are not aware of this. As a result of this, there will be a default in payment.
2. Not setting up autopay
For most loans, setting up auto payment is the best way to ensure that you don't forget. This is especially true when you need to keep track of more than one student loan.
3. Not updating contact information
Many people default in the repayment of student loans as a result of not updating their contact information with the creditor, making it difficult for them to get notifications as to the status of the loan.
4. Not communicating with the lender
Even if debtors update their contact information, it is still very possible to miss notifications from lenders. The messages could go unnoticed if debtors are not intentionally looking out for them.
5. Stopping the payment at some point
Some student loan debtors stop making payments after paying for a while, instead of refinancing, which could help with the repayment of a loan. Pausing payment after refinancing can affect the payment schedule.
6. Being on a tight budget
Some people are on a tight budget and even the smallest unplanned expenses could take them off track. Other expenses—like groceries and transportation—may require the money needed to make payments.
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7. Increase in interest rate
The interest rate on the student loan can increase over time, which increases the overall amount needing to be repaid, causing the debtors to default in payment.
8. Discontinuing college
Surprisingly, some people drop out of school a few months or years after getting a student loan. This ruins their chances of getting a good and steady job that would enable them to repay the loan.
9. Bankruptcy of co-signer
In some situations, the co-signer of a student loan may declare bankruptcy. This automatically reduces the chances of keeping up with the loan requirements.
10. Missing payments
So many things can contribute to missing a payment, whether it’s a lack of proper notification on the part of the lender or the inability to pay as a result of a shortfall in finances.
Understanding the reasons why people default on student loan repayment will go a long way in helping you avoid the same pitfalls. For those beginning their journey towards a tertiary education, consider whether taking out a loan is the right thing for you. There are now alternatives to a student loan, do your research and make the decision that will give you peace.