There appears to be a default problem in the first 2-3 years of repayment…but there shouldn’t be!

I was passing by a newspaper stand and saw a headline that talked about the higher percentage of borrowers default on their loans in the first three years.  I did not read the paper but I went ‘home later and found a link from the government in which the article was based on:

http://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html

To recap this student just under 15% of students are defaulting (being more than 270 days delinquent) within 3 years of entering repayment.  This was done as part of the statistics kept by the government that also includes the default in the first two years.

For the normal person this headline was probably horrible.  I mean after all coming out of school in an awful economy and straddled with these payments are hardly fair.

I am going to be the grinch and tell you what the percentage of people are who should be defaulting in the first 3 years: 0%

Yes zero and here is why:

-If you are unemployed and register with an employment agency–you get an Unemployment Deferment.  This will keep you out of default.

-If you are unable to register with an employment agency and are not receiving unemployment benefits perhaps your loan payment is more than 20% of your income.  If this is the case you qualify for a Student Loan Debt Burden Forbearance.  This will also keep you out of deferment.

-You also have the option of applying for an Income Driven Repayment plan that will in general base your payment at 10% or 15% of your income after subtracting out the poverty level.  If you have no income or an income under the minimum threshold–your payment will be $0.00.  This will also keep you out of default.

-Though there are more examples but lets take one more.  You make a ton of money but have a ton of bills and just can’t afford to make your payments and don’t qualify for any deferment, forbearance, or payment plan based on your income.  You get 3 years of General Forbearance time no matter what.  There is no criteria to qualify for this.

So what this means is since it takes almost a year to default, at most people should not be defaulting till at least their fourth year and that is only if they are out of options.  The only reason anyone should be defaulting in their first 3 years is if they put their head in the sand and ignored the loans.

I realize students don’t know their options.  All I ask is if you are having troubles please contact your servicer.  This will help you in the long term and will keep you from repeating the unnecessary statistics that exist above.