What Is A Student Loan Default?
Student loan default happens when the borrower fails to make any payment towards the loan for a particular period. The time span generally depends on the type of student loan you’re holding.
For students with federal loans, the delinquency period begins after 90 days of avoidance. Your loan account will then be marked as default after 270 consecutive days of nonpayment. Once the loan account is marked, the entire balance becomes due immediately.
What Happens When You Default On Federal Student Loans?
Federal student loan defaults can lead you to face harsh consequences, including wage garnishment and the seizure of tax refunds. This is because the government helps with various options for paying back the student loans before evasion is possible.
- Borrowers of federal student loans are provided with options like forbearance and deferment. These options allow them to put off the payments in a legal way
- The borrower is also liable to apply for various repayment options suitable to their income
- Once you get declared as a defaulted account, you’re no longer liable for any benefits offered by federal loans such as forbearance, deferment, repayment plans, loan forgiveness programs, and future federal student aid
What Happens When You Default On Private Student Loans?
The process of private student loan default is similar to any other private loan. However, the lender needs to proceed according to the terms and conditions levied by the Fair Debt Collection Practices Act to recover the funds.
- This means lenders can’t recover funds without filing a lawsuit in court
- The lender needs to go through a court procedure to force you to make payments for the pending amount
- Missed payments can result in reduced credit scores
- Upon winning the judgment, the lender can file for garnishing the wages or charge your bank account to recover the money
Delinquencies Vs. Default
Many people think defaults and delinquencies are the same. However, they’re two different situations. Delinquencies are a situation that takes place whenever you fail to make the payments. The minute you delay the payment, you’ll be declared delinquent until you start making the payments again.
Default payments, on the other hand, take place after the delinquency period. As per the Consumer Financial Protection Bureau, private student loans are marked default after three months of non-payment, while federal student loans are marked after 270 days of missed payments.
Stay Prepared For The Collection Agencies
If you’re defaulting on an unsecured loan, the lender may contact the collection agencies to collect the balance amount. The charges of the collection agency are already added to the due loan amount. Therefore, the borrower will need to also pay these.
If you have a Perkins loan default, the collection charges won’t surpass a particular principal percentage. Moreover, the collection charges can legally go as high as 40% of the loan amount.
Ways to Prevent Default
- Private Loans: When it comes to private student loans, the available option for getting student loans out of default relies on your lender. Hence, make sure to contact them immediately to check if they agree with the new payment terms or arrangements. Sometimes, the lender might allow you to proceed with regular future monthly payments. Private student loans work on particular limitations. Therefore, if the lender or collection agency sues you for an unpaid amount, it’s illegal. The borrower is still liable for the unpaid debt, but can’t be sued for it
- Federal Loans: Federal loan holders have three different options when seeking student loan default help. The students can pay the entire amount of the loan, work on a loan rehabilitation agreement, or apply for a direct consolidation loan. Prior to consolidation, the borrower needs to make three regular payments or agree to an income-driven repayment plan. If any wage garnishment or any other order from the court has taken place, it’s necessary to lift the order before working on consolidation
Ways to Get Out of Default
- It’s essential to make arrangements with the lender to repay the loan
- If you’re going for loan rehabilitation, the installments need to be affordable and reasonable
- While considering rehabilitation, if your wages are liable for any garnishment order, the guarantee agency might agree to a high rehabilitation amount as divergent to the sum
- If the default is recent and the borrower successfully gets the delinquency within 90 days prior to any claim being filed, it can be cured
- Consolidate the delinquent loan before the lender files a claim can also help in curing its status
- Look for a payment plan in which you need to pay merely 1% of the total due amount every month
- For accurate details regarding your options, consider professional default student loan assistance
Why Is It Important To Get Out Of Default?
Missing payments towards student loans can lead to numerous problems, including but not limited to harassing calls from collection agents and legal proceedings. Hence, one shouldn’t miss out on the payments. If such a situation takes place, take the required steps immediately.
Bottom Line
If you face difficulties in making the payments towards your student loans, it’s ideal to get in touch with the lender and discuss your options for a more affordable payment. Moreover, consider building a budget plan so you can keep making timely payments.
