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5 Lessons I Learned After Defaulting on My Student Loans


Guest post from Mary of Adventures In Frugal Land

I see a lot of stories on about people who paid off their debt or bought a house debt-free. I applaud everyone who has been able to do that; but today, I want to touch on a subject not often brought up.

I am going to tell you about the time I defaulted on my student loans. It’s an embarrassing story, but one that I hope will help someone else in the same situation.

When I entered college, I never expected to accumulate a ton of student loan debt. However, since I was not considered an “independent student”, my parent’s income factored into my financial aid package. This lowered the amount of aid I qualified to receive — even though they were not in a position to help with my schooling.

Looking back, I should have taken a year off and worked full-time to cover the tuition, instead of taking out loans. Like many students, I didn’t think of the long term ramifications of my student loan debt. I wasn’t concerned with making payments while I was attending school, even though it would have saved me a fortune in interest! I was young and naïve. I thought that once I graduated, I could easily afford to pay it off in one or two years.

I didn’t expect to have such a difficult time finding a decent job. I didn’t expect to face divorce or to be a single mother.

While I tried to make my monthly payments, I wasn’t always able to — because feeding my daughter took priority. Within a few months of missing my payments, I was in default.

This SHOULD BE the part of the story where I tell you that I grew up and took care of it. But it’s not. Instead of dealing with the phone calls and letters, I ignored them. I let the letters pile up without opening them. I ignored it.

As I’m sure you can imagine, that didn’t work out so well for me. Now, looking back, here are a few lessons I learned from this situation:

Lesson # 1: Ignoring the Problem Doesn’t Fix It.

At that time, I was in the lowest financial situation that I’ve been in. My tax refund was going to help pull me out of the hole. Can you guess where this is going?

Lesson # 2: The Threats Are Real

I knew that there was something called an offset, but I never bothered to figure out exactly what that was. Again, I was young and immature.

That year, my federal income tax refund was offset (automatically taken from me) and sent to the Department of Education. That was a wake-up call for me. I did not want to take the chance of this happening again so I contacted the loan holders.

Lesson # 3: The Loan Holders Aren’t Scary

Surprisingly, they were very pleasant to talk to. I really have no idea as to why I was so afraid before. Just pick up the phone and dial.

Lesson # 4: There Are Programs That Can Help

Please, if you are having trouble making your monthly payments, don’t be afraid to contact your loan holders. There are so many programs that can lower your payments. I could’ve saved myself a lot of time, money, and stress if I would have just answered the phone when they started calling me.

Lesson # 5: Never Do That Again

After I learned how to get out of default, I promised myself that I would never get into that position again. I now monitor my accounts daily and try to pay extra on the interest. I look forward to the day that I am officially out of debt!

Have you ever defaulted on a loan payment? If so, what did you learn from that experience? 

Mary blogs at Adventures In Frugal Land about saving money, earning money and spending money from a low income point of view. She is also the author of the ebook, “Poor Me: Practical Advice For Navigating Welfare”.

photo source

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  • Great post! Thank you for discussing a topic that so many others won’t.

    I, too, allowed my student loans to default. As a single mom of 4, I simply couldn’t make the payments and still afford to pay my family’s monthly bills.

    At one point though, I was so emotionally drained from the constant notices I was getting in the mail, that I decided to call the number listed, and see what they had to say.

    I was actually pleasantly surprised to end up on the phone with someone who was kind and seemed genuinely concerned about helping me figure out a way to pay off my debt. Not at all like the angry monster I had envisioned talking to.

    After a brief discussion, I learned that the lender was willing to set up small monthly payments that better met my financial needs (in my case, it was only $5).

    Now, I don’t have to deal with the stress of the phone calls and letters, and although my student loan debt is still large, I am hopeful that, in time, I’ll be able to eliminate it completely.

    Thanks so much for sharing your story!

    • Mary says:

      It amazes me how many others have been in this situation. I’m happy you found out that they aren’t so scary to deal with as well!

  • Stacey says:

    This post could have been written about me! I defaulted on my loans, and knew about offset (kind of), and was hanging on by a thread financially waiting for that $2500 tax return one year when it was finally withheld. It caused a lot to come crashing down around me at the time, but in facing the problem I found a lot of what this article says to be true. I entered a rehabilitation program and was expected to pay a whopping $5 per month to establish a good payment record….$5! What had I been so scared of?!? The debt collector I worked with was fantastic, and I frequently talked to the same person over the phone when I needed to ask questions or take care of paperwork. Now, my loans are back in good standing, I got my first refund back this year, and I still am not expected to pay very much each month because I am on an income based repayment. While I would like to pay them off or pay extra each month, I’m a single Mom and just not in a position to do this. Just know there is hope to rectify this situation and options for everyone! Even on the tightest budget, $5/month is worth getting student loans back in good standing. Pick up the phone and be honest…you’ll be thankful you did!

  • Jessica says:

    Student loans are not eligible to be discharged, even if you declare bankruptcy. You earned the education and you should pay for it. I feel like colleges are doing students an incredible disservice by not having all borrowers come in for financial education about how it will work. It is also very sad how much a college education costs at many educational institutions. I graduated from Northwestern University in 2001 with 14,000 in subsidized student loans. I had gotten a great deal of grants, I had a work-study job, etc. When I graduated, the annual tuition was $29,000 not including room and board and fees.

    I got a job working for the university upon my graduation. My annual salary for a job requiring the degree I had? $24,500. They did not even pay me per year what it cost to go there per year.

    I paid off that $14,000 in loans within the 6 month grace period. How? I used 50% of my salary to do it. I got paid every two weeks. With one paycheck, I paid my rent, natural gas bill, electricity bill, CTA pass and I got the cheapest food I could find. With the other check, I paid down the loan balance. I brought home about $1,500 per month and my rent was $690, the CTA pass was $55, my utilities were about $40 and I spent only about $50-75 monthly on food (in Chicago). I sold all of my (very well used) furniture and many of my other belongings. I had no cell phone (this was 2001), no landline and no cable/internet. I even made and sold blankets. As soon as I had that loan paid off, I found out I needed $$$$ dental work. As soon as I paid off the dental work (it took 3 months to do so they let me pay throughout), my (then boyfriend) and I got engaged and started planning a simple wedding and I applied to and got accepted to grad school.

    I started grad school 15 months after I graduated with my bachelor’s degree. I had no debt but very little assets. My husband had just graduated and had no job. We got the smallest apartment we could find, got new to us used furniture and registered for practical wedding gifts. Yes we got three toasters and returned two for store credit and used it for groceries.

    I very much believe in personal responsibility. For graduate school, I took out a subsidized loan my first quarter. I also had a part-time job in a biochemistry lab. I put out word to my professors that I was seeking a research position or teaching aid position. One came through. The rest of my graduate school tuition was paid for by the fellowship and I got student health insurance and a $1,000 monthly stipend. I was paid to earn my Master’s of Public Health degree.

    I come from a working poor home. Bologna was “expensive” for us. When I was at Northwestern, my roommate got her hair done weekly at a downtown salon. She had a cashmere winter coat. Her grandma put $100 in her checking account weekly for spending money. I had $100 in quarters for the YEAR to do my laundry. If there ever was a case of the haves and have nots, it was in my dorm room freshman year.

    Everyone’s circumstances are different. But we are all responsible for making sure our debts are paid.

  • Becky says:

    Nice post! it is hard to share our mistakes, but that is the best way to help others from doing the same thing. It may just be a typo, but near the end you mention that when you can, you are making extra payments towards the interest. Paying extra is fantastic, but make sure any extra payments are applied towards the principal if the loan allows it. That not only helps pay down the loan faster, but will end up saving you interest over the course of the loan. Every little bit helps! Great job. 🙂

  • Stephanie says:

    Great post! Even though I have paid off my student loans a few years back, I understand what you mean about not knowing the ramifications of what it means to have student loan debt. I was always told that it was “ok” to have student loan debt and that it was a considered a “good debt” to have.

    While I was in school I didn’t really think about how I was going to pay it all back. I have learned a lot from my journey of paying off student loans and had I known then what I know now, I would have done things much differently. I appreciate you sharing your story with us. I know that this was probably not an easy story to share but I think that this post will be an encouragement to others who are in the same situation.

  • Allison says:

    Did you mean to say you are making extra payments toward the principal (instead of the interest)?

  • It’s so much easier to blog about the successes than the areas in which we’ve struggled. Great post! We ended up with some medical debt after the birth of our last child and talking to the hospital proved very beneficial. You make such a good point that it’s vital To respond and reach out and explain what’s going on.

  • Karen says:

    Mine got behind and I refinanced my home and land to pay off bills. I know the company called to get a payoff and I was shown the checks to be mailed at the closing in the lawyers office. Imagine my surprise when a few months later I was told it was not paid in full and I still owed and they were garnishing my paycheck. It didn’t make one lick of difference that I had tried my best in good faith to pay this student loan off , anyone that’s ever done financing or mortgage deals knows the finances company does not take your word for what amounts you owe, they get the payoff figure and they write the check , not me. Regardless they garnished my pay and ruined my credit.

  • Amanda says:

    Thank you. I am similar, and this is refreshing. I went to one of the most expensive schools in the state for one of the lowest paying careers. My senior year of college, God called me to ministry. I struggled, and worked 2 part-time jobs in top of my ministry teaching job. I went back to school to get my MBA. Maybe a Masters Degree would help me dig out of the debt hole. Again, I took out student loans. Again, God keeps me in ministry. I have gone from low-income ministry job to low-I come Ministry job for a decade now, but I know I have obeyed God’s call on my life and His direction. My current light out of the tunnel is the Public Student Loan Forgiveness Program. Thankfully, every ministry I have ever worked for is a 501(c)3, and I am thankful for this chance to break from the bondage of student loans.

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