A defaulted loan can harm your financial future. But that is old news considering the fact that a major portion of the nation is now neck deep in various kinds of defaulted loans. The newest danger of a defaulted loan that you have to face, in case you are a student of the Central Michigan University, is that your transcript might be held back by the university unless you are able to clear the debt.
However, according to Karen Hutslar, the registrar of CMU, the students will be able to view their report online and they will also be awarded their diploma. A student will only be handled over their copy of the transcript when all their debt to the university has been cleared off. But some exceptions will be made in special cases.
Every individual case is evaluated and the students are informed in writing about the reason why their transcript in being held by the university. Sometimes students require an official copy of their transcript along with the seal of the Registrar while applying for a job or for pursuing higher studies. According to the director of Student Account Services and University Billing, Cindy Rubingh, them the situation will be evaluated individually for them and the transcript will be sent to the prospective employer or the educational institution.
According to Hutslar this rule has always been in effect in the CMU and also that they are not allowed to withhold the transcripts unless there are financial reasons.
Under the Family Educational Rights and Privacy Act, the students attending accredited colleges can view all the areas of their educational records. But the educational institutions cannot be compelled to provide the official copies of the transcripts to the students under FERPA. Thus, the students cannot take this path. Again the federal Freedom of Information Act does not provide a respite for such students since the act does not include the academic records and neither do many of the state versions of the law.
Again, there are colleges and institutions that have a restriction on the number of copies of the unofficial transcripts that the students can have and also provide the reason for withholding the official transcript in the unofficial transcript.
The FOIA does not apply to the private colleges. However, the public college students can sue the institution on constitutional grounds if their transcripts are being withheld. Also, according to the Federal Bankruptcy code, if the student has already applied for the discharging the debt through bankruptcy or if the debt has already been discharged in a court of law then the transcript cannot be withheld.
According to the Arne Duncan, Secretary Of Education, the student loan situation does not have a simple solution. Both the parties, the debtor and the lenders, have to share the responsibility and help the nation in coming out of the situation. Also, he has urged both the states and the universities to step forward and help the federal government in handling the situation. He encourages the state governments to invest in the process and thereby help the federal government.
According to the loan defaulters the government should focus more on helping the defaulters by making more opportunities of paying off the debt gradually rather than recruiting private collection agencies to force them to pay the debt off. A survey report by the National consumer Law Center, a huge number of federal student loan defaulters do not know about the status of their loans and in fact have no idea about what a defaulted loan means or what its consequences are likely to be. Also, when the collection agents are approaching them, they are unable to pay the dent since they do not have the money. But ignorance does not provide them any kind of a shield as the financial difficulties and the poor credit record persists for the rest of their lives. In certain extreme cases the defaulters also have their pays withheld if their loans remain in default for a long time.
While many of the borrowers had become defaulted simply because of lack of financial wherewithal or because they do not have a job, many others were not aware of any communication with their lenders regarding the status of their loans. Some of the students who chose weak colleges and therefore were not ready for employment at the end of their graduation do not feel the need to pay off the loan simply because they did not receive quality education. A majority of those fall in the last category graduated from for-profit colleges that have already been earmarked for having deplorable graduation rates and very low job outcomes.
The government is trying to help the situation by asking the students to be more proactive in gathering information and the institutions in providing the necessary information before the student enrolls in the courses. Often these counseling sessions take place when the students are at the end of their graduation session and the damage is already done. However, according to some studies the default rates have been seen to improve after such counseling.
There are a number of repayment options for both private and federal loan borrowers. But they have to be begun before the loan enters default status. Once the loan becomes defaulted it is very difficult to restore the credit score. This is where the collection agents cash in.
In order to avoid other borrowers from facing the consequences of a default, awareness about the consequences should be spread. Unless the prospective borrowers are aware of the consequences of defaulted loans they would not make any arrangements for the repayment and therefore face a lasting effect on their credit record. Apart from spreading awareness the federal government should create more job opportunities for graduates and enable them to pay their loans off.
The student loan situation is becoming a bone of contention for the presidential candidates and the issues demand some kind of reform to prevent the government from collapsing under the debt.