If your loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default varies depending on the type of loan you received.
For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your scheduled student loan payments for a period of at least 270 days (about nine months).
Consequences of Default:
The consequences, which can be severe, include the following:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called “acceleration”).
- You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
- You will lose eligibility for additional federal student aid.
- The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
- Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
- Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
- Your loan holder can take you to court.
- You may not be able to purchase or sell assets such as real estate.
- You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
- It may take years to reestablish a good credit record.
- Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school’s decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you.
Solutions for Default:
Rehabilitation Program: Under a loan rehabilitation agreement, your loan holder will determine a reasonable monthly payment amount that is equal to 15 percent of your annual discretionary income, divided by 12. Discretionary income is the amount of your adjusted gross income (from your most recent federal income tax return) that exceeds 150 percent of the poverty guideline amount for your state and family size. The program will last 10 months. After your 9th payment on the program, your default will be uplifted and you will then be transfer back to a loan servicer.
Loan Consolidation: Another option for getting out of default is to consolidate your defaulted federal student loan into a Direct Consolidation Loan. Loan consolidation allows you to pay off one or more federal student loans with a new consolidation loan. You will have to also agree to pay off the loans under an income driven repayment program.
Alumni Support Center is a specialize company that educates student loan borrowers on government programs and prepare applications for applicants who wish to enroll into the various programs offered through The Department of Education. We will counsel and walk you through your options and help prepare and finalize your documents, depending on which program(s) you choose. Alumni Support Center is not affiliated with Federal, State, or Local Government agencies. Alumni Support Center is not a loan servicer or originator. Consumers with student loan debt have the legal right to use an attorney or process federal student loan services documentation on their own behalf through the Department Of Education.