Demystifying Loan Default for College Grads

What those Department of Education bills are really saying

by Olivia Walters

I felt compelled to write about this topic since many of my followers are graduated college students or soon-to-be grads. This is a short piece to discuss terms the U.S. Department of Education expects borrowers to understand, plus how easy it is to make mistakes in this arena. 

If you were/are a loan borrower like me, you relied on federal and/or private loans to help offset what tuition was left after grants and scholarships.

In the American university system, it’s understood (painfully) that college = expensive. Based on comments made by several of my French friends, the prices are outrageous compared to average tuition rates in Europe. I’m not going to get into numbers for time’s sake, so let me get on to the real problem.

Paying it back

After graduating from Furman University, a private liberal arts institution nestled on the outskirts of Greenville, South Carolina, I enjoyed my grace period (the time the government gives you to start working/not make payments), then I started making monthly payments to the U.S. Department of Education and Sallie Mae.

Interest rates aside, I did enough working full-time at a creperie, part-time as a tutor and restaurant hostess. Some personal events transpired and I ended up moving into a house. Feeling proud, independent, I traded no roommates for $500 more in rent.

In hindsight, I wasn’t ready for this transition, but I learned, ok! With that in mind, I had to defer my loans for two months while I moved yet again, this time into a house which gave me more of a stable living cost. 

During deferment, I didn’t make monthly payments but all the while interest still racked up. It didn’t turn out to be that much of a hiccup, because when I began repaying again, the two months I took off to get my financials in order really didn’t affect the amount owed.

When you see a number like $32,000 it’s neither here nor there when it goes up a tad, so I took a breath and returned to my borrower duty. 

A slap in the face

So it’s November 2019, I’m about a year and a half out of college, a degree under my belt, feeling responsible while making ends meet. I worked a busy wedding season at my employer, those shifts paid off, I divvied out the wages so I always prioritized my student loan payments. 

Then my parents handed me a stack of bills when I saw them at lunch one afternoon.

There was my name next to lots of red bold letters reading CONFIDENTIAL, ACTION REQUESTED IMMEDIATELY. The Department of Education had been trying to get in touch with me for months at my parents’ address in Columbia. 

I opened the letter. Many billing statements and a new number I had never seen before. I called and sure enough this was another loan bill. The woman on the phone explained that Stafford loans and Federal Perkins loans were billed separately. She also mentioned a word I had never heard of before. Default. For a year I had no idea I was not paying on the $16,000 Perkins loan I owed. 

I was floored.

Especially after thinking I was already doing what I was supposed to paying Great Lakes (Stafford loan) and Sallie Mae (private). When you don’t pay after 9 months, the federal loans enter default. The government may come after your wages or take money from your taxes.

So I heard this and shook my head, “Hell no!”

Breathing and accepting debt

What had I been working so hard for, when my loan payments sometimes equaled half of my paycheck, only for the U.S. Department of Education to take the compulsory measure of refusing my tax refund and dipping into my paycheck? 

The woman who notified me of my loan default also forwarded the necessary documents so I could argue for another payment plan besides the standard income driven 15% of your annual salary divided by 12. Then I completed the paperwork and provided all of the sufficient supplementary documents like copies of my pay stubs and hardcopies of my current loan billing statements.

I’m hoping this all gets me a reasonable monthly plan, because it’s simply out of the question should I end up paying over $600 monthly for all of my loans. The next consideration is for me to consolidate my Stafford and Perkins loans, but I’ve got to get my defaulted Perkins in the clear before I can move forward (I will write a follow-up once I know more). 

I share my experience as a loan borrower to enlighten others who may be living the same reality and to encourage upcoming grads to take the loan exit surveys in May 2020 a little more seriously than I did.

Look, we borrowed the loans, so the simple equation balances out. Borrow then repay. During the about-to-graduate blur—parties, invitation design, final exams, what outfit am I going to walk in?—time management can seem overwhelming. I wish I had done my research a bit more thoroughly before I finished so I wouldn’t feel as drowned in debt as I do now. But those are the rules. 

To touch on one last thought, I’d like to remind my readers that loans might seem scary, hard to understand, and irritating. They told us to go to college and it’d be great, right?

Sure, I’m proud of myself. It brings me personal fulfillment to speak and write French. I travelled, interned, and met friends and families in France.

I’m just in the adjustment phase now that all the bells and whistles of get your degree are quiet.

Humbly speaking, I will pay off what I owe to the best of my ability. I’m here to let you know that no one is going to come out and deprive you of a decent life should you too fall into default. Everything will be fine.

Just stay in touch with your loan agencies and do the best you can to repay.

Read my newsletter for updates along my journey.

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