Student loan default
About this video
The video explains the stages of falling behind on a student loan: you are delinquent as soon as you miss a payment, it typically hits your credit at 90 days, and you are in default at 270 days. Default can badly damage credit, lead to the whole loan being accelerated, and wages being garnished. The narrator advises researching your major, talking to recent graduates and checking Department of Education default rates before borrowing.
You'll be able to
- explain the difference between delinquency and default on a student loan.
- describe the consequences of default, including acceleration and wage garnishment.
- list ways to research whether a loan is likely to be repayable before borrowing.
Key words
- delinquent
- Owing a payment that you haven't paid on time.
- default
- A serious stage, about 270 days after a missed payment, when the loan is treated as not being repaid.
- credit
- Your record of borrowing and repaying, which lenders use to decide whether to lend to you.
- accelerate the loan
- When the lender demands the whole remaining loan at once instead of monthly payments.
- wage garnishment
- When part of your pay is taken by your employer to repay a debt before you receive it.
- default rate
- The share of borrowers from a school or program who are in default.
Transcript
- [Narrator] In this video, we're gonna talk about a situation that you definitely want to avoid, and that's student loan default. So let's just start with a little bit of the vocabulary. So as soon as you miss a payment deadline, so you miss a deadline for payment.
And this isn't true just for student loans, it's true for any type of debt really, but you are going to be delinquent. Delinquent means you owe the money, and you haven't paid it on time. Now you go 90 days in the future from when you miss the deadline, so greater than or equal to 90 days.
Now it becomes even more serious. This is the time that it will typically hit your credit, hits credit. We talk about this in other videos, but this is something that you definitely don't wanna happen because as soon as it happens, even if you do everything perfect from that point on, it's gonna take a while for your credit to get back to where it was before.
But things get even more serious, if you wait even longer. So you go to 270 days, and this is 270 days from when you first missed that deadline, from when you were first delinquent, and now you are in default. And default is a really bad situation to hit. A few things will happen.
One, it's going to be even worse for credit, worse for credit, and once again, even harder to repair. Even if you all of a sudden were able to get back on track on the payments, it's gonna take a long time for your credit to improve. In certain cases, they might accelerate the loan.
That is a really tough situation to be in because if the loan is accelerated, that means you no longer just owe the monthly payment. That's a situation where you owe the whole loan all at once, so in instead of it being a few hundred dollars a month, all of a sudden, you might owe $10,000 or $20,000 all at once.
And that's a very hard hole to dig yourself out of. And they might go after your wages, so they might garner wages. This is where it's decided that someone, wherever your wages are coming from, have to pay for this stuff, for the loan, before you can even get it.
And once again, it's going to hit your credit, so this is a situation you really want to avoid. And my best advice is before you take on that loan, really think about what your life is going to be like once you're going to have to pay it back. It's very easy, when you're in, maybe a freshman in college and say, "Oh, okay, things are gonna be fine.
"It looks like my friends are taking loans like this. "I'll just kinda go with the flow." But look at your major. Don't be afraid to ask questions of recent graduates. See the types of jobs they're getting. Think about what percentage of the graduates in that major that you're thinking about going into aren't getting a job or maybe got laid off and might have times where it's hard for them to make their payments.
See if they regret taking those loans, ask all of those questions. You can also go to other sites to get more information about how likely it is for loans to be paid or not paid. So this right over here is from the Department of Education. You could go there yourself, and you could look up a university, you could look up the type of degree, and it gives you the default rate.
So this is for doctor's degrees, so you wouldn't expect a huge default rate. Most doctors have pretty good chance of getting good employment and pay well, and this is, I'm assuming it's not just, this isn't medical doctors, this is a PhD. And so that actually might be a little bit more variation than being a medical doctor.
But you can see the official default rates, and you can see the default rate right over here. And I'm assuming that this is in percentages right over here. Well, actually no, these are in, looks like it's the number of borrowers in default, number of borrowers in repayment, enrollment figures, percent calculation, and so this will give you a sense of, okay, for this university, for those degrees, how likely is a default, and you should plan accordingly.
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