Forty-four million Americans hold a total of $1.3 trillion in student loan debt. According to the Federal Reserve, the average amount of debt held by student loan borrowers is $32,731, and the average monthly amount due is $393.
Of these borrowers, 19 percent are behind on their payments.
If you miss a payment on your federal student loans, you have 270 days to make a payment before your debt goes into default. More than 3,000 people default on their federal student loans every day.
Once federal student debt is in default, the government is able to garnish your wages, your Social Security check, your federal tax refund and even your disability benefits.
And as debt levels rise, creditors are taking increasingly extreme actions to pressure borrowers into paying off their debts. In 19 states, government agencies can even seize a professional license if a borrower defaults on their loans. For many workers, no license means no job.
According to records collected by The New York Times, firefighters, nurses, teachers, lawyers, massage therapists, barbers, psychologists and real estate brokers have all had their professional credentials suspended because they defaulted on their student loans. These records point to over 8,700 instances in which workers have had their credentials revoked or suspended because of educational debt over the past few years.
The government began using aggressive collection techniques such as these in the 1980s. Some states would garnish wages and others would put liens on borrowers' cars, houses or both. Texas and Illinois were the first to use their power over professional licenses as a way to motivate borrowers to pay off their loans.
Several states, including Hawaii, Iowa and Massachusetts are legally able to use this method, but often choose not to, in part because people who cannot work cannot repay their loans.
Shannon Otto of Nashville, Tennessee had her professional license suspended by Tennessee's Board of Nursing because she defaulted on her loans while she was paying off medical expenses related to recurring seizures. In order to renew her license and go back to work, Otto would need to pay $1,500 — a cost she is unable to afford.
"I absolutely loved my job, and it seems unbelievable that I can't do it anymore," she told The New York Times.
Debra Curry, a nurse from Georgia, similarly had her license terminated because she was behind on her student loan payments. She told The Times, "It was traumatic."
Today, Curry pays her creditors $1,500 a month for fear that she will lose her ability to work if she falls behind. "I really do want to pay the loans back," she says. "How do you think I'm going to be able to pay it back if I don't have a job?"
How to avoid default
In order to avoid going into default, borrowers should make sure they choose a repayment plan that fits their budget. The government offers eight different repayment plans that borrowers can choose for paying off debt.
Financial writer Janet Alvarez managed to pay off roughly $100,000 in student loans over just six years by being aggressive and by choosing the Income-Based Repayment Plan.
"The cardinal rule about maintaining or improving your credit is the first thing that I applied to my finances, which is make all your debt current," she tells CNBC Make It. "The student loan debt I immediately placed on income-based repayment, which is a program sponsored by the federal government which applies to all [federal] student loans that graduates your payments based upon your earnings. So if your earnings are zero, you pay zero."
Not every borrower can pay off their loans as quickly as Alvarez, but there are repayment plans that allow for borrowers to pay off their loans over a longer period of time. The Extended Repayment Plan, for example, gives borrowers up to 25 years to pay off their loans and allows them to choose for their payments to be either fixed or graduated.
And before making any decisions about financing a degree, students should calculate how long it will take for them to pay off their loans and estimate how much money they expect to make after graduation. By staying organized and keeping an eye on interest rates, graduates can make sure they pay off their loans as efficiently as possible.
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