If you have financial difficulties that prevent the
repayment of your loans, consider applying for a deferment or forbearance on
your loans. It is much better to defer your payments than to go into default.
Ask your lender about these options while you are still making payments not
after you default on your loan. After you default you won't be able to get a
deferment or forbearance.
Consequences of Default
If you default on a student loan:
- Your loans may be turned over to a collection agency.
- You'll be accountable for the costs associated with
collecting your loan, including court costs and attorney fees.
- Your defaulted loans will appear on your credit record.
This tarnish on your credit record will make it difficult for you to obtain an
auto loan, mortgage, or credit cards.
- You can be sued for the entire amount of your loan.
- You will be ineligible for assistance under most federal
benefit programs.
- You may have your wages garnished.
- You won't receive any more federal aid until you repay the
loan in full or make arrangements to repay what you already owe and make at
least six consecutive, on-time, monthly payments.
- You may not be able to renew a professional license you
hold.
- Your federal and state income tax refunds may be withheld.
- You'll be ineligible for deferments.
- Federal interest benefits will be denied.
- Not to mention, you still owe the full amount of your
loan.
Postponing Repayment
There are two options available for postponing repayment of your student
loans. These are deferments and and forbearances. Ask your lender whether you're
eligible for a deferment or forbearance before you default the loans. Remember,
you aren't eligible for a deferment or forbearance if you default the loan.
Deferments
In a deferment, the lender allows you to postpone repaying the loan's
principal for a specific amount of time. In most federal loan programs, you can
defer your loans while you're in school at least half-time. In Perkins and
Subsidized Stafford Loans, no interest accrues during the deferment period, and
the federal government pays the interest. In other loan programs, such as the
unsubsidized Stafford loan, the interest still accrues during the deferment
period. This increases the amount of the debt, and you will end up paying
interest on the interest that accrued.
Deferments are commonly granted for disabled students who are participating
in a rehabilitation training program, economic hardship, students who are
enrolled in undergraduate or graduate school, and unemployment.
To get a deferment you must submit an application and provide documentation
to support your request for a deferment. Do not stop making payments on your
student loans until after you are notified that your deferment has been granted
or you may end up defaulting your loan.
Forbearances
In a forbearance situation, the lender allows you to postpone or reduce your
payments, but the interest charges continue to accrue. The federal government
doesn't pay the interest charges on the loan during the forbearance period, you
must do so. There are also limits on the length of a forbearance. Forbearances
usually last in 12-month intervals for up to three years.
Forbearances are also not granted automatically. You must submit an
application and provide documentation to support your request for a forbearance.
And keep in mind that forbearances are usually granted only in cases of extreme
financial hardship or other unusual circumstances. Also, as with a deferment,
don't stop making payments on your student loans until after you are notified
that your forbearances have been granted.
Getting Out of Default
To get out of default, you need to make arrangements with your
lender/servicer to repay the loan. Once you have made six regular payments, on
time, monthly payments, you will be eligible for additional Title IV aid.
After you have made twelve regular payments and applied for and received
"rehabilitation", you will no longer be considered in default. At this
point, your default will be removed from the reports to credit bureaus.
Federal Guide to Defaulted Student Loans
The US Department of Education Debt Collection Service has an online Guide
to Defaulted Student Loans. This should help you repay your defaulted
student loans. It has information on every aspect of federal loan default
including: loan consolidation, loan cancellation and discharge, and the
consequences of default. For more information on repaying a defaulted loan, you
can call 1-800-4-FED-AID (1-800-433-3243) or 1-800-621-3115.
Preventing
Default
