Fix My Finances: I defaulted on my student loans

Welcome to Fix My Finances, Yahoo Finance’s new personal finance series. In each episode, we take a look at one viewer’s financial state of affairs and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.

In this episode, we speak with Tavion. He’s 25, from Dallas, Texas, and just started a new job as a truck driver. After graduating from college, Tavion had some issues paying his student loans and wants to get back on track.

“Once I finished school, I put them in the back of my mind,” Tavion said. “I didn’t prioritize them, so I just stopped paying on them and they ended up going into default. I’m just trying to get out of that hole.”

Tavion ignored his student loans but wants to get back on track.

Tavion is not alone—about 3,000 borrowers default on their student loans every day. Once he made the decision to begin paying back his loans, he was put on a 10-month probation payment plan to which he pays $50 a month. This reduced rate is based on his income.

Fixing his credit

Tavion’s biggest concern now is repairing his credit, which was damaged by his delinquent loan payments.

There’s good news and bad news for Tavion. The bad news is that his loan delinquencies will remain on his credit report for seven years. The good news is the default will be removed after he has made the probation payments on time for 10 months. Any late payments could restart the rehabilitation period, so Tavion needs to make sure he stays the course.

Since Tavion’s student loan payments will go up after the probation period, we suggest that he start putting money aside so he will be ready for the higher monthly payments.

Rebuilding your credit is not an easy or quick process. Anyone in Tavion’s position should concentrate on paying down their student loans and storing savings away for an emergency or a rainy day.

Want to be a part of this new series? We are looking for people in their 20s and 30s who need a money makeover.  Apply here.