Failure to Pay Back Student Loans Carries Heavy Consequences

Former students who cannot afford to pay back their loans are out of luck — and so are the communities around them.

For many, loans are a fact of life and often the only way to afford a college education.

Kaitie Nock graduated from Bowling Green State University in 2013 with a degree in English. She took out federal loans and private loans to cover her education expenses. Though taking out loans didn’t change what field she decided to enter, life after school found her unable to find a job.

“I think I was a little bit duped into thinking that this was the better plan for me.” — Kaitie Nock

But her payments were due.

She worked part time at a grocery store and opted for a payment plan that was cheaper in the immediate future but the interest rates increased over time. Better education on loans is necessary, Nock said.

“I think I was a little bit duped into thinking that this was the better plan for me,” she said. “It’s really kind of not.”

She now works as an instructional designer and hopes to finish paying off her loans sometime next year.

 

A Pew Research Center article from Anthony Cilluffo highlights that 37 percent of adults ages 18 to 29 have taken out loans. And the total student loan debt in the United States? A USA Today article from Courtney Miller sets that number as $1.21 trillion.

Student loans affect entrepreneurship, said Visiting Assistant Professor at the University of Akron Wade Litt.

“What people are tending to find is that having student loans reduces entrepreneurship a bit, and in areas with more student loans, those areas have lesser rates of business creationship,” he said.

If students have to take out loans, they may not be going to school for their ideal occupation.

“Some of the other research is finding is that a lot of times, people with student loans might select into higher-paying types of industries,” Litt said. “For example, if someone is going to college and needs to get student loans, someone who might have otherwise gone into teaching or more like a public-service type occupation, might instead sort into a higher-paying management or lawyer-type position.”

Though not ideal, opting for a different field of education field may be a fiscally wise decision. Student loans are generally not dischargeable in bankruptcy. If a student fails to make their payments, the government could garnish their wages and tax returns and they may be sued. Any cosigners are stuck with the bill, too.

And if students don’t pay back private loans, they may be sued.

“In general, it’s very difficult to challenge a loan agreement.” — Carol Crimi

Failure to pay any loans may cause a student to default.  

Default incurs additional costs, damages credit and eliminates any additional benefits — like deferment­ — that would have otherwise been an option.

But if someone like Nock finds themselves unable to pay back their loans, Carol Crimi from Kent State’s Student Legal Services said they don’t have many options.

“In general, it’s very difficult to challenge a loan agreement,” she said.

However, Crimi said, some lenders may not have loans sufficiently documented. In that case, the firm couldn’t substantiate their claim and would lose their case.

Student loans are now the largest form of household debt besides mortgage, Litt said. Moreover, students may be in that boat because they’re less sensitive to the price of school since they have student loans making the investment feasible.

Education is still a good investment, Litt said, but only if the student graduates. Otherwise, the student is back to square one with nothing to show for it except debt.

Though national student-loan debt continues to grow, a 2015 study from the Brookings Institute — a nonprofit public policy organization — shows non-traditional schools like for-profit universities and community colleges accounts for 70 percent of defaults. And as of 2014, those kinds of institutions now account for 13 of the top 25 schools where students owe the most.

Ultimately, Crimi said, students should be cautious.

“By way of being proactive, students —and parents too — should engage in financial counseling before they sign for these loans,” she said. “My suggestion is that maybe more though needs to be given to the process before the loan is signed for.”