Consequences of Default and Default Prevention
There are a number of things to consider when it comes to repaying
your federal student loan. Find out when repayment for your loan, or loans,
starts, how to make your payment, repayment options available to you, and
what to do if you have trouble making payments.
What Is Default?
you miss your regular student loan payments and do not contact your loan servicer
to make alternative arrangements, your loans will be considered delinquent.
The point when a loan is considered to be in default varies depending on
the type of loan you received.
What Happens if I Default?
The consequences of defaulting on your student loan can be severe. Here are
some of the things that could happen:
- You can be sued for the amount you owe, and you will have to pay court
costs and attorney fees.
- Your credit rating will be damaged, which means in the future you may
not be able to get a credit card or borrow money to buy a car or a home.
- Any federal or state payments due to you, including income tax refunds
and lottery winnings, could be automatically directed to pay your loan debt.
- Your wages at your job may be garnished. That means part of your paycheck
will automatically go to your student loan payments.
- Your account may be referred to a collection agency, and you will be responsible
for paying collection charges.
- You cannot receive further federal financial aid until your default situation
- You could be denied assistance from federal benefit programs.
- You will be ineligible for deferments, forbearances and repayment plan
- You could be demanded for immediate payment of the entire balance of your
loan, plus any unpaid interest. This is called "acceleration".
How Can I Avoid Default?
Communicate with your loan servicer.
It's important that you admit when you are in trouble or do not understand
something about repaying your student loans. When it looks like you might
not be able to make a student loan payment, call them immediately to discuss
available options. Those options may include:
- Changing your repayment to better suit your situation
- Requesting a deferment or forbearance to temporarily postpone payments
- Requesting a loan consolidation to lower your monthly payments
- Seeking advice from a Counseling
Here are some other tips to help keep you out of default status:
- Make your loan payments on time.
- Set up your loan for electronic withdrawals from your bank account.
- Take advantage of any repayment benefits offered by your loan servicer.
- Notify the loan servicer immediately if you change your address, name
or any contact information.
- Keep copies of all records related to your student loans.
Defaulting is bad for you, your lender, your guarantor, your college
or university and taxpayers. There are many resources available to help you.
All you have to do is ASK!