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How My Student Loans Ballooned From $8K to $36K

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Confusion over student loan payments left an Arizona woman owing nearly five times the amount she took out to finance her education, though she insists she repaid the balances years ago, KTVK-3TV reports.

Michelle Hudman took out three loans totaling $8,400 in the 1980s. As she explained to a local reporter, Hudman repaid one loan and her mom repaid the other, but she struggled to eliminate the third. After missing a few payments here and there, her student loan servicer took her tax refund, which Hudman said satisfied her debt. She said she received a statement saying “paid in full.”

That’s not what the servicer’s records reflect, so they sent Hudman another notice: It said she has been in default for more than 30 years, owes more than $36,000 and will have her wages garnished as a result. Thirty years of interest on unpaid loans add up, as do late fees and collection costs associated with loans in default.

Hudman said she has proof of her payment, but the servicer insists she hasn’t paid. Whatever the real situation is, Hudman will want to figure out what she needs to do going forward, because unpaid student loans — which cannot be discharged in bankruptcy — can severely damage her credit. If she isn’t really in default, she’ll want to make sure her credit report accurately reflects that.

Payment history has the largest impact on your credit standing — even one missed payment can knock 100 points off your score — so having an account in poor standing for years will dig you into quite the credit hole. If that negative information has been reported in error, you may not know your credit is suffering, unless you’re checking your credit scores and reports regularly. Considering you can do both for free, it’s worth your time.

Everyone is entitled to free annual credit reports from the three major credit reporting agencies (Equifax, Experian and TransUnion), and you can get your credit data, including two credit scores, for free through Credit.com.

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