We are now in 2017, and student loan debt is more rampant than ever before. According to the Federal Reserve, there is actually a whopping $1.4 trillion in student loan debt in the United States alone. Over 44 million Americans are in debt with student loans as you are reading this! There are also many student debtors that find themselves unable to stay on top of their student loans, so more and more loans are becoming delinquent, or going into default, as you will often hear. This is actually a really big problem. What happens when your accounts go into default? How can you avoid default? Are student loans considered unsecured debt? How do private student loans and federal loans differ when in default? These are all questions student debtors ask every day in regards to their student loans.
About Secured Debt
Most people have heard of secured debt and unsecured debt, but you may not really understand the difference. Secured debt is guaranteed with some form of collateral. This means that if you don’t make the payments toward your debts, they can take the collateral instead. The most common assets used as collateral for loans include automobiles and homes. You often hear of people getting their homes taken back by the bank if they don’t make their payments, or people losing their cars to repossession. This is what happens when a secured loan is considered in default.
Just because you have your debt secured with something doesn’t mean you can just not pay it and let them take the security collateral. There are other ways this can affect you. Sure, you may lose your home or your car, but you can also lose your creditworthiness. The debt doesn’t just ‘go away’ simply because you let them take the collateral. Oftentimes, your collateral isn’t even enough to cover the debt, but is simply used as something that will make you WANT to make the payments on time so you can keep your assets. Be careful with secured debts!
About Unsecured Debt
Unsecured debt is completely different from secured debt. Unsecured debts don’t have any sort of collateral to back them up. One of the most common forms of unsecured debt is credit card debt. When you use your credit card to buy things, the lender doesn’t come and take the things you bought with the card away from you. Instead, they will report it to the credit bureaus. This can really do a number on your credit score. It may not seem like you have that much to lose, but if you look at how important a good credit history is for just about everything financial that you will do in life, this can put a major dent in your financial future.
Unsecured debts may not be secured with some type of property or asset, but that doesn’t mean the lender can’t come after you if you fail to pay. They can send the debt to a collection agency who will haunt you day in, day out. They can sue you and have your wages garnished to pay off the debt. They have options, and before you assume that they won’t come after you, you will want to take a look at how many people end up in court every day being sued for various unsecured debts.
Where Do Student Loans Fall?
For all intents and purposes, student loans are considered an unsecured debt. While student loans do not have anything that is used as collateral to ‘secure’ them, per se, that doesn’t mean you can just walk away from your student loan debt and assume your lenders can’t really do anything about it. It’s not like a car note, where they can come and repossess your car if you don’t pay. It’s not like a mortgage, where they can foreclose on your home if you don’t pay. So, what can they do exactly?
With student loans, there are several ways they can force your hand and make you pay up if you are in default. First of all, if you are expecting any type of tax refund or other government reimbursement, you can kiss it goodbye. They will take it before you ever get the opportunity to lay eyes on it. They can also garnish your wages, at up to 15 percent of your disposable income. This means you may run, but you definitely can’t hide. Face the fact that you will have to pay, and go ahead and get a plan in place to tackle your student loan debt. That is the best way to overcome student debt and ensure you won’t have any financial issues in the future because of it.