Graduating in Debt

For many people, the cost of attending college is far too expensive to consider. Financial aid – grants, scholarships, loans – is a necessity.

A majority of available scholarships, however, require brains and good SAT scores. Most grants require low income. As a result, students look to loans to subsidize the excessive fees.However, many students find themselves with more than $10,000 to repay upon graduation.

Robert Sanchez, an engineering student who graduated from USF in 1993, was faced with about $12,000 in loans after he finished school. He was able to find an entry-level job with a local engineering firm.

Luckily for him, the salary was high enough that he repaid his loans within his first three years – significantly sooner than his initial 20-year repayment agreement.

“Not that I was expecting it when I first got the loans, though,” he said. “I would have been happy enough to repay them with the minimum agreed payment at the total length of the loan. I’ve got a lot of friends who are still paying off their loans and are hardly halfway there.”

Upon graduation, every student with a school loan is given six months of deferment before repayment must begin. For a majority of these students, having the extra post-graduation months gives enough time to procure a job that allows enough left-over money to repay school loans.

On the other hand, others find that this time period is not enough – especially facing such a bad economy. Finding a good job in a harsh economy can prove to be too difficult for an already-tight budget.

As a result, the loan goes into default.

So how does one rectify this situation?

The Florida Department of Education reports that there are several steps taken in order to recover outstanding balance debts.

First, the U.S. Treasury may withhold tax refunds toward repayment of the loan.

Susan McGrath, a previous USF student who decided to leave the university to pursue full-time employment halfway through her junior year, said that repaying her loans has become more of a problem than it was originally worth.

“I actually haven’t started repaying them because I don’t have the money,” she said, adding that she’s been out of school for more than four years. Her loan, which totals more than $3,000 before interest, was originally obtained to foot the bill for the fees that were not covered by her Florida Pre-Paid College Program.

“Two years ago, they started taking it out of my taxes,” McGrath said. “I didn’t know they’d be doing that until I got a letter in the mail saying that the money I was expecting as a return would be going straight to the government for defaulted loans.”

In addition to the tax refund withholdance, the ex-student may have to pay additional collection costs, much like when a credit card balance is put into collections. According to the Department of Education, this can be as much as an additional 25 percent more than the original loan amount. Having an account reported in collections can cause great damage to a person’s credit rating.

If payment still has not been made even after these steps have been taken, the Department of Education can require the person’s employer to forward 10-15 percent of the ex-student’s disposable pay toward repayment of the loan. A federal employee’s paycheck will automatically have 15 percent taken out, no questions asked.

If this step is unsuccessful, the department can still take legal action to force the person to repay the loan. In this event, the student could be sued in state or federal district court for the outstanding balance plus attorney’s fees and court costs.In any case, credit bureaus may be notified, and credit rating will suffer.

“What’s the point of going through four years of school to find a good-paying job, when all you do is beat up your credit rating?” Sanchez said. “Then you can’t get a mortgage, a car loan or any credit cards. What was the point?”