Education: Defaulting on Student Loans


Defaulting on Student Loans

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defaulting on student loans can leave you in a bind finacially

After you graduate, leave school, or drop below half-time enrollment, you have six or nine months before you begin repayment. You will receive information about repayment and will be notified by your loan provider of the date loan repayment begins. If you default on your student loan, the maturity date of each promissory note is accelerated making payment in full immediately due, and you are no longer eligible for any type of deferment or forbearance.

During the delinquency period, your loan holder must exercise "due diligence" in attempting to collect the loan; that is, your loan holder must make repeated efforts to locate and contact you about repayment. If your loan holder�s efforts are unsuccessful, steps will be taken to place the loan in default and to turn the loan over to the guaranty agency in your state. Your loan holder may "accelerate" a defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.

Once your loan is assigned to a guaranty agency or the U.S. Department of Education (Department) for collection, the following steps may be taken to recover the outstanding balance due:

The Department of the Treasury may offset your federal and/or state tax refunds and any other payments, as authorized by law, to repay your defaulted loan.
You may have to pay additional collection costs after your loan is assigned to a private collection agency for collection.
Also, you may be subject to Administrative Wage Garnishment, whereby the Department will require your employer to forward 15% of your disposable pay toward repayment of your loan.
Federal employees face the possibility of having 15% of their disposable pay offset by the Department toward repayment of their loan through Federal Salary Offset.
The Department may take legal action to force you to repay the loan.
Finally, credit bureaus may be notified, and your credit rating will suffer.

Once a loan is declared in default, you are no longer entitled to any deferments or forbearances. In addition, you may not receive any additional Title IV federal student aid if you are in default on any Title IV student loan until you have made payments of an approved amount for at least six consecutive months. Please see Going Back to School for more information on this topic.

However, there are now more ways than ever before to repay your defaulted student loan and certain programs can even remove your loan from its defaulted status. Determining which repayment option that is right for you depends on what your objective is.

All guaranty agencies and the U.S. Department of Education (Department) will accept regular monthly payments that are both reasonable to the agency and affordable to you. You should call us at 1-800-621-3115 and one of our customer service representatives will assist you with determining a repayment amount that is right for you.

All guaranty agencies and the U.S. Department of Education (Department) will accept regular monthly payments that are both reasonable to the agency and affordable to you.

You should call us at 1-800-621-3115 and one of our customer service representatives will assist you with determining a repayment amount that is right for you.

Failure to repay your defaulted student loan can be damaging to your credit record. In fact, consumer reporting agencies may continue to report an account for 7 years from the opening date. However, there are several things that you can do to at least partially, and in some cases, fully restore your credit record. Your options for bettering your credit report include: repay or satisfy the loan in full; consolidate your loan through the FFEL loan consolidation program or the William D. Ford Direct Loan Program; or rehabilitate your loan through our loan rehabilitation program.

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