Consequences of Default and Default Prevention
What Is Default?
If you miss your regular
student loan payments and do not contact your loan servicer to make alternative
arrangements, your loans will be considered delinquent.
If you have
a delinquent loan, at first you will receive letters and phone calls offering
help and information. However, this contact will become demanding and get
to be a hassle if you continue to miss payments. The callers are not being
mean. They are required by federal regulations to contact you by letter and
phone.
You cannot afford to miss any payments without talking to
your loan servicer. If you continue in a delinquent status without paying
for 270 days (for monthly payments) or 330 days (for less frequent payments)
without resolving the issue with your loan servicer, the guarantor of your
loan will conclude that you no longer intend to repay the loan and will place
it in a default status.
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
is resolved.
- You could be denied assistance from federal benefit programs.
- You will be ineligible for deferments, forbearances and repayment plan
options.
- You may be denied certain professional, occupational, business, industry,
recreational, and/or motor vehicle licenses. If you already have a professional
license, it could be suspended.
- You could be demanded for immediate payment of the entire balance of your
loan, plus any unpaid interest.
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 themr 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
Service
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!