The Increasing Problem of Personal Loan Defaults
In the last few years, credit management agencies all over the country have been earning very high commissions for collecting on defaulted student and personal loans, with their employees earning commissions in the tens of thousands of dollars due to this.
Why does this happen?
The big problem in our current economy is that, while a lot of people acquired either a personal loan or a student loan, the economic situation affected them more than expected, forcing a lot of people to default on their loans. However, a lot of these borrowers want to recover from this scenario and struggle to do so in order to be able to pay back their personal loans.
Another aspect of personal loans that makes this even harder for borrowers is that default rates for both student and personal loans have increased quite substantially, reaching in some cases rates as high as nine percent. And if we start considering delinquency rates, then we get even higher numbers. Also, one of the worst kinds of realities that people who default their personal loan payments are forced to experience is the much-dreaded seizure of tax refunds and even the taking of a part of their Social Security payments, all without even needing a court order.
Another of the important causes of borrowers defaulting on their personal loan payments is the several deficiencies of the collection agencies, which offer little to no way for borrowers to lodge complaints when problems arise with their payments. Naturally, several borrowers out there opt for private lenders to get their personal loans, since these lenders will never go as far as banks do, but the experience of defaulting even a private personal loan can still be very unpleasant for everyone involved.
Of course, knowing these flaws, banks and some lenders sometimes even take advantage of them by not giving consumers much advice and support on the legal ramifications of what could happen if the default on their personal loans. This is exactly why it can be so important to take out federal student and personal loans whenever possible, so customers can make use of their various borrower protections, such as repayment plans that are income-driven and other that they can use to avoid defaulting on their personal loans. This is but the first of a few proactive steps that customers can take to avoid falling victims of companies like the one mentioned at the beginning of this article.
Due to all of this, a lot of schools are seeing their number of students fall dramatically in the past few years, and the fact that they are raising their monthly costs and even their testing fees is definitely not helping.
For example, studies are showing that the number of test takers for law school has fallen by an impressive 9.6 percent in the 2010-2011 period, and then a whopping 16.2 percent in the following one, all of which caused a severe drop in law school applications for both schools and personal loans.
All of this has also severe consequences in the long run for schools as well, since less students and less income makes them far less competitive and compelling for new applicants. Add to that a lot of recently-graduated law students who have personal loans to pay and who struggle to find a job in the market, and you have the recipe for an endless decline in law professionals and an increase in personal loan debt.
Because of all of this, everyone should consider all financial aspects of applying for college, so they can plan their personal loans accordingly and thus avoid defaulting on their payments.