Defaulting on your student loans is one of the worst financial mistakes you can make. The reason: no matter how hard you try to avoid them, and no matter how many payments you miss, they'll still track you down and make you pay them off.
Whether you have to pay them now through wage garnishment or later through garnishment of your social security benefits, student loan servicers and the U.S. Government have a huge system in place to prevent escrow.
Here are some important tips on how to avoid defaulting on your student loans now and 5 years from now!
Borrow only what you need to borrow
The best thing you can do now to prevent student loan default is to only borrow what you actually need for your college education. Too many students borrow with student loans to pay for all kinds of things – tuition, room and board, extracurricular activities, even personal items. If you're borrowing money to pay for all these things, be prepared to default on that debt later in life.
Instead, if you need to borrow money for your education, simply borrow the minimum you need to cover your tuition costs. Everything else has to be with you – maybe you get a part-time job at school? Maybe you have a room with friends to keep your costs down? Maybe you just take public transportation? There are many options available.
Calculate your return on investment
This may sound harsh if you follow your passions on a particular path, but you really need to calculate the return on your educational investment. Borrowing money for education is an investment – an investment in your future earning potential. So you should only borrow what you can pay back based on salaries in the field you want to work in.
If you want to be an art major who, when you graduate, will only make 20.000 U.S. Dollars earned per year, you should not take out 100.Take out $1,000 in student loans to go to a university. You really need to understand what difference student loans in the amount of 20.000 USD over time. Ideally, you should have credits of about 5.Taking out a $000 loan – something that can be paid back within 10 years of graduation. On the other hand, if you are going to be a doctor, you know that your salary should cover the loan payments and as such you can borrow more.
Avoid private student loans
Avoiding private student loans is essential because the terms are usually not very favorable to the borrower compared to federal student loans. In fact, many private student loans require cosigners, so in cases of an attempted default, the lender can also go to the cosigner (who is usually a parent). If you choose federal student loans, at least options are available if you have trouble making payments. Here's why you should avoid private student loans.
Prioritize student loan debt
Once you leave school and start working, you should prioritize your student loan debt over all other debt. The reason – student loan debt can not go bankrupt. As such, you'll be stuck with it forever until you pay it off. This is not the case with most other types of debt, and therefore it is almost the "worst" debt. You should make sure you pay off your student loans as soon as possible after you graduate and get student loan debt cleared early. So if you can't avoid student loan debt, the best way to tackle it is quickly.
If you already have a default value
If you are already in default on your student loan debt, your best option is to rehab the student loan debt. This is a specific process developed by the department of education to restore your loans to good standing that will allow you to re-qualify for student loan forgiveness programs or special student loan forgiveness programs.
Readers, what other tips or tricks do you have for avoiding student loan default?