Student Loan Default-Your Options

When you find yourself facing student loan default, it is important to understand you have several options.

The first step in understanding the options available to you regarding student loan default is understanding exactly what determines the term ‘default.' Unfortunately, many borrowers believe they are in default on their student loans when they miss a payment or two. This may not actually be correct, depending on the type of loan that you have.

Defining Student Loan Default

Default on a FFEL or Direct Loan does not occur until you become more than 270 days delinquent in making payments; which is 9 months or more. For a Perkins loan you may be in default if you miss an installment payment; however.

Consequences of Student Loan Default

It is also important to understand the consequences if you default on your student loans. In addition to appearing on your credit report and lowering your credit score, other consequences include:

• Entire balance of your loan, including interest, could become immediately payable
• Deferment options can be lost
• May become ineligible for additional federal student aid
• May incur additional interest, late fees, collection costs and court costs
• Federal income tax refunds and some state income tax refunds might be withheld to be applied toward loan repayment
• Wages may be garnished
• May be unable to obtain a professional license in some areas

Options to Avoid Student Loan Default

If your loan(s) have not yet gone into default, there are options available to help you avoid that outcome. These options include:

• Consolidate loans into one single loan to possibly lower payment
• Switch to an income sensitive repayment plan
• Eliminate the loan through a loan forgiveness or cancellation program
• Postpone payments through a deferment or forbearance program

If your loan(s) have already gone into default, your options may be more limited; however, that does not mean that you do not still have some choices available to remedy the situation. Maintaining communication with your lender regarding your situation and the amount you can afford to pay is an important step in removing your loans from default.

Steps for Removing Loans from Default

• Contact lender and explain the situation
• Ask about options
• Demonstrate a willingness to repay the loan

Options for removing your loan from default status include:

• Paying the loan in full
• Rehabilitating the loan
• Agree with lender on an affordable payment plan
• Consolidate the loan(s)

Remember, the worst thing you can do is ignore the situation. Studentloans.info can help you find the right solution to your financial questions regarding student loan default. Let us help you through the process.