What Happens When You Default on Student Loans?
This is the story of what happened to an Architecture student (me)
who defaulted on his student loans and credit cards.
It is an eye opening exposure of what the banks can do to you.
Let this serve as a good example of what a bad example looks like.
…………………………………………………………………………………..
Student life, I know for a fact is one of the most exciting parts of
life that most of us may wish to relive. The fun, the independence,
the sudden shouldering of responsibility, the freedom, the parties…
Studying up to late hours and hard work put in to build a promising
future are all part of the same game. Students living away from
home especially, have great experiences to go through.
But along with this new found freedom comes responsibility and
that’s something you cannot opt out of (unless you’re like me).
I dropped out of college in my junior year and got a job working on
a ship traveling around the world… Italy, France, Spain, Holland,
Beirut…
The adventure was intoxicating.
But after working 8-10 hours/day, 7 days a week on a ship mostly
out at sea, doing hard, manual labor (with no women on board)
gets old faster than one might imagine.
No family, no friends - just a bunch of drunken sailors,
…no television, and no land because you’re far out at sea
in rocky waters most of the time.
After you’ve seen the new cities several times each and hung out
at the same bars over and over, some of the magic disappears.
You get lonely. You get homesick.
And then reality sinks in… 30 more years of this crap!
So I decided to go back to school and finish college.
But this time without the financial support of my parents.
They took advantage of my situation declaring me independent
and cut off my financial (fun)ding… I was on my own!
So I did as most other students do, took out student loans and
credit card loans. I worked part time and funded the shortfalls
with my credit cards.
I rented an apartment paying basic electricity, gas and store bills.
I had to pay my credit card bills and had several other regular
expenses that were necessities and some simple enjoyments.
I finally graduated, got a decent job as a computer programmer
in Boston, Mass and started living as a responsible adult.
All was going well until I left my job as a computer programmer
in snowy, freezing ice-cold Boston, and decided to
relocate to the Grand Bahama Island in the Bahamas.
My bachelor degree was in Architecture and I found work with
a fellow classmate in sunny Nassau, Bahamas…
Ah - The good life… Sun and Fun.
I rented a beachfront bungalow and found work on
Paradise Island. Life was good…
Until one day I found out that I needed working papers
to continue working and could not apply for them
while I was living in the Bahamas.
The Bahamians know how to take care of their own.
To get accepted for the working papers, I would have to
fly back home to New York City and apply for the
working papers from there.
Once they receive my application, The Bahamians would
then run an ad in the local newspaper for the job.
If they could not find any qualified Bahamiams for the position,
only then would they grant me the working papers.
Thus began my saga of my living off credit cards, defaulting on
student loans, credit cards and other financial disasters
which have haunted me my entire adult life.
And that is why I am writing this story of w(owes).
So that you can avoid the mistakes that I have made and
have taken me decades to correct.
When I was unable to secure working papers to continue
working in the Bahamas, the work quickly dried up and my
cash flow was abruptly interrupted.
I did what many red-blooded Americans do…
Started Living on credit cards.
I was living near the beach, beautiful weather, beautiful
women, fresh air, peace and quiet. It was a good life…
I was a Master at MasterCard…
Borrowing from one card to pay the bill on the next card.
…Until I maxed out all my credit cards and the cash dried up.
Then I graduated from the School of Hard Knocks.
I got a Master of Financial Disaster Degree.
I remember when the gas stove (which ran off of a gas tank)
ran out of gas. It was $60 (which I didn’t have) to refill the tank
- so I just stopped cooking and only ate raw foods.
If you want to lose weight, just eat raw foods for months.
Taste like crap but works like a charm. I lost lots of weight.
I was skinny. Mainly because I ran out of money for food.
I remember one day only having one dollar to my name
which bought me a small bag of potato chips and a soda.
That was my meal for the day.
At about this same time my student loans were coming due.
STUDENT LOANS? …You gotta be kidding me.
I couldn’t even afford food - The student loans would have to wait.
Well, guess what happens when you don’t pay your student loans?
Borrowers who fail to make a payment on time are considered
delinquent on their loans. Deliquent student loans are trouble.
Student Loan Borrowers who don’t make payments for 270 days
are in default. Defaulting has severe and long-lasting consequences:
The Department of Education can immediately demand
repayment of the total loan amount due.
The Department of Eduction will attempt to collect the debt and
may/will charge collection costs.
And by the way, The Department of Education reports defaulted
loans to national credit bureaus, damaging the borrowers’ credit
ratings and making it difficult for borrowers to make purchases
such as cars, get a home mortgage or even rent an apartment.
- Borrowers with loans in default are ineligible for Title IV
student aid.
- Borrowers with loans in default are ineligible for deferments.
- The State can withhold borrowers’ income tax refund,
including your spouses’.
- Borrowers’ wages may be garnished up to 15% of the gross.
- Borrowers with defaulted FFEL or Direct Loan Program loans
may be liable for collection costs incurred to collect the loans.
If the holder of the defaulted loan, which may be either the
U.S. Department of Education or a guaranty agency, retains a
collection agency to collect defaulted loans, charges imposed by
the collection agency may be added to the amount borrowers owe.
This means that the amount of the Student Loans may include
collection costs of up to 18.5% of the principal and interest
outstanding on the defaulted loan.
ALL OF THESE THINGS HAPPENED TO ME!
I started getting letters asking me to pay the loans in full.
When I ignored them, I start getting more letters.
At first the letters are kind of friendly.
“In case you’ve forgotten or didn’t receive the last letter”…
Then they get stronger. “Warning: You are late with your payment”…
Then they get threatening. Legal Action Pending”…
Then, One day a letter comes saying - This is your FINAL notice.
I thought “Good, at least I won’t have to hear from them anymore”
- WRONG! - More letters keep coming.
I ignored these letters for a very long time.
And then one day THE letter comes telling me…
They are keeping my State Income Tax Refund Money to pay a debt.
Oh Crap!… I was counting on that money.
Oh well, let me just get on with my life.
Time passes, I forget about it. Life is good.
And then one day I go to the bank to withdraw some cash
out of the ATM machine.
“Sorry, that transaction is not available at this time”.
“Stupid ATM machines” I think.
I call customer service to tell them off and complain,
and I’m informed that there is a “Freeze” on my account.
A “freeze” on your account is like a banking Black Hole.
NOTHING can escape, Not even light.
You can put money in, but can’t take it out.
Nothing comes out…No money.
The account is now dead and the money in the account
stays there until the matter is cleared up.
Or so I thought…
Meanwhile, the automatic deductions that I had
previously set up and which had worked just fine for a
long time, no longer go through or get paid.
So, what does the bank do?
They charge you with a $30 insufficient fund charge…
…each occurance.
“But the money is in the account” I protest.
“Not anymore, deadbeat” is what the banker was
probably thinking.
What they actually say to you is that you have to take the
matter up with the company that froze the account.
I’m thinking, “But I don’t even know who froze the account”
They offer no help.
But Meanwhile, the bank is happy to keep charging you
$30 everytime an auto debit-attempts…
until ALL the money is sucked out the account.
So, why not just close the account, you’re thinking.
Because YOU CAN’T. It’s frozen.
And that’s not the end of it! Oh no…
Until you stop the auto-debits, they keep charging you.
You had money in the account, the bank takes
ALL OF IT and keeps charging you.
And now you owe the bank money!
And your creditors, which are NOT getting paid,
start slamming you with late fees and start calling you
on the phone with some “not-so friendly” reminders that
you still owe them money.
And it doesn’t stop there… No, No, No…
All right I think - “Screw Citibank”.
I’ll just open an account elsewhere.
And so I did.
The thing is… Now I’m afraid to leave any money in the
account, wondering when “Big Brother” will find
the account and seize and freeze the money.
And you start wondering if they will “freeze” your
credit cards (if you are lucky enough to have any left).
So I started operating strictly with cash.
I’ll get the last laugh yet.
Or so I thought…
I ignored my student loan for years - many years.
Nothing much happened.
OK, so one day years later, they found my bank account
and froze it. Cost me a few hundred dollars.
I’ll survive.
All right, they started taking my income tax return
money. Damn, that hurt. But Life goes on.
Life is still good, All is well!
But then one day, years later
“Big Brother” - NY State Higher Education Services Returns!
He blind sided me…
I had learned not to keep too much money in
the bank (didn’t have much anyway).
And I learned not to expect any money back
from income taxes. I was OK with that.
But I was totally unprepared for what HE did next.
One day I go to cash my paycheck, and I noticed
“Hey, my check is mighty light this week”
What happened?
I look closely at my pay stub.
The number of hours are correct, the rate is correct.
Hey, what’s this…
Wage Attachment. 10% of the gross.
10% OF THE GROSS, not net (currently 15%).
10% of the freakin’ gross!
Damn!
10% of the gross taken off the top.
Before you get your check.
10% of the gross gone… Every Week… Poof!
No explaination, no one to complain to.
No supervisor to override. Your money is gone.
10% GONE. It doesn’t matter that you were
barely scrapping by every week, living check to check.
Now you live with 10% less. Every week. It sucks!
PLUS, they still take your income tax refund.
No wonder they call it a re fund becaues they are Re Funding
their own pockets with your money (interest and penalties).
There’s nothing you can do about it.
So I learned to live on 10% less for many years.
One day I finally had the good fortune to get a
better paying job. Better job, better pay and…
Best of all - the wage attachment stopped. Hurray!
Or so I thought…
Life is good. Life goes on. I pay my bills.
Years later, on Friday the 13th, it happened.
“Big Brother Returned Again”.
One miserable deja vu day the check was light.
I check the paystub. Number of hours are correct,
the rate is correct…
There it was on the pay stub again…
Wage attachment. 10% of the gross.
‘Son of a bitch’ found me again.
Damn it, damn it, damn it!
You can’t win! You can’t hide!
Big Brother will find you.
It might take weeks. It might take months.
In my case it took many, many years… Decades!
But Big Brother will hunt you down and find you.
You can’t hide forever! And guess what?
I just received a letter informing me that
Big Brother is now approved to Increase the
wage attachment withholdings to 15% of the gross.
How much does that hurt?
As an example, let’s say you were grossing $1,000 per
week. You would pay about $350 in taxes and Social Security
leaving you with about $650.
They will take 15% of the $1,000 which is $150
leaving you with only $500.
HALF of your paycheck is GONE!
You just took a $150 a week pay cut.
And if you make less than $1,000 it hurts even more.
AND they still take your income tax return!
Trust me on this.
You DON’T want this to happen to YOU!
Pay your student loans and credit cards on time.
THE END
Carl Willoughby has worked as a Licensed Registered Representaive
for the Prudential Insurance Company, as a Computer Programmer
for the New England Telephone Company, as a Computer Sales Associate
for SEARS and is self-employed as an Internet Marketing Consultant
and Musician.
credit bureaus, credit card loans, Default, Deliquent, Department of Education, FFEL, freeze, student loans, wage attachment
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