Southwest Michigan Realtor

By Michael Delaware, REALTOR®

Defaulting on a Federal Student Loan Can Scar Your Credit


Defaulting on a Federal Student loan can scar your credit, which can impact your ability to borrow money again in the future.  Many students do not realize that when they sign up for a Federal Student loan, it does not leave their credit report until it is paid.  Federal Student Loans are immune to bankruptcy proceedings, so even if you declare bankruptcy, the loan remains on your credit bureaus.

Defaulting on a Federal Student Loan can scar your credit for a long, long time.

It is important for young people to know this information, so I have taken time to write a lot about it recently.  I am of the personal opinion that one should never sign up for a Federal Student loan unless they are going to recieve an marketable skill in society after graduation with their degree.  Persuing a degree that is obscure or narrow in demand in the market place is too risky an endeavor to incur a sizeable student loan. 

One should only, in my opinion, utilize a the Federal Student Loan program if the career one is going into is in high demand and pays well, and offers one readily marketable employment right after graduation.  Examples of such careers might be a Medical Doctor, Lawyer, Accountant or Engineer. 

Taking on a four year program for a degree in ‘Green Energy Conservation’ as an example

The future generation needs to exercise caution with Federal Student Loans.

may sound good on paper, but despite the rheteric in the media, it is not a wide open and high demand field providing immediate employment for those with such a degree. 

One could probably list many degrees some students end up pursuing in this category, such as ‘Eastern Philosophy’ and ‘Political Science’.  Unless you have gauranteed employment upon graduation, it is not advisable to roll up a high dollar student loan debt on an obscure career choice.

When one is attempting to buy a home in later years, your unpaid or negative marks from a defaulted student loan can damage your credit scores and place this out of reach.  Too many times I run into young people in their mid 20’s who have $50,000+ in Federal Student loan debt that is eating up all their monthly earnings, and usually they are in a job that has no relation to the degree or education they obtained in school. 

This is a sad future for millions of American students, and it wise to step back and let your practical side of the decision guide you.  Follow this basic rule: Pursue an education that is going to offer you a readily marketable skill immediately upon graduation, and one that will give you a large enough salary even at an entry level position to pay back the loan within 5 years, and you will do well.

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