How To Prevent Student Loan Default

Defaulting on your student loans is one of the worst financial mistakes you can make.  The reason: no matter how hard you try to avoid them, and no matter how many payments you miss, they will still track you down and make you pay them.

Whether you have to pay them now through wage garnishment, or later, by having your Social Security payments garnished, the student loan servicers and the US Government have a huge system in effect that prevents escape.

Here are some important tips on how to prevent yourself from defaulting on your student loans now, and in 5 years!

Only Borrow What You Need

The biggest thing you can do right now to prevent student loan default is to only borrow what you actually need for your college education.  Too many students borrow using student loans to pay for all types of things – tuition, room and board, extracurricular activities, even personal stuff.  If you borrow money to pay for all of these things, you may be setting yourself up fr failure in later life to repay these debts.

Instead, if you need to borrow money for your education, just borrow the minimum you need to get your tuition covered.  Everything else needs to be on you – maybe you get a part time job while in school?  Maybe you room with friends to keep your costs down?  Maybe you only take public transportation?  There are lots of options available.

Calculate Your Return on Investment

This may sound harsh if you are following your passions down a certain path, but you really need to calculate the return on your education investment.  Borrowing money for education is an investment – an investment in your future earning potential.  So, you should only borrow what you can expect to repay based on the salaries in the field you plan to work in.

If you are going to be an art major only earning $20,000 per year when you graduate, you shouldn't be taking out $100,000 in student loans to go to a university.  You really need to understand the difference that $20,000 in student loans makes over time. You should ideally be taking out about $5,000 in loans – something that would be manageable to repay within 10 years of graduation.  On the other hand, if you're going to be a doctor, you know your salary should cover the loan payments, and as such, can borrow more.

Avoid Private Student Loans

Avoiding private student loans is essential since the terms are usually not very favorable to the borrower when compared to federal student loans.  In fact, many private student loans require cosigners, so, in cases of attempted default, the lender can go after the cosigner as well (which is usually a parent).   If you go with federal student loans, there are at least options available if you are having difficulty making payments, so that is why you should avoid private student loans.

Prioritize Student Loan Debt

Once you are out of school and working, you should prioritize your student loan debt above all other debt.  The reason – student loan debt cannot be discharged in bankruptcy.  As such, you are stuck with it forever until you pay it off.  That is not the case with most other types of debt, and so it is almost “the worst” debt to have.  You should make sure that you are paying off your student loans as quickly as possible once you graduate, and get student loan debt free early on.  So, if you can't avoid student loan debt, the best thing you can do is tacklet it quickly.

If You've Already Defaulted

If you've already defaulted on your student loan debt, your best option is to go through student loan debt rehabilitation. This is a specific process created by the Department of Education to get your loans back in good standing, which will allow you to qualify again for student loan forgiveness or specialty student loan forgiveness programs.

Readers, what other tips or tricks do you have to prevent student loan default?