Student loans can be a huge financial burden. If you are unable to make your loan payments, your loans will go into default. This can have serious consequences, including damage to your credit score and garnishment of your wages. In this article, we will discuss what happens when your student loans go into default and the steps you can take to get out of default.
What are student loans in default and what are the consequences?
Student loans in default are those that have not been paid back according to the terms of your promissory note. This means you’ve missed one or more payments. If you’re having trouble making payments, call your loan servicer right away to discuss your options.
If your student loan is in default, it’s important to take action quickly. The consequences of default can be severe, and they can last for years. They include:
Wage garnishment
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.
Loss of eligibility for deferment, forbearance, and repayment plans
This means you’ll have to start making full, immediate payments on your loan. You won’t be able to take advantage of any repayment plans that could make your payments more manageable.
Damage to your credit rating
Defaulting on your student loan can damage your credit rating for years. This can make it difficult to get a car loan, a mortgage, or even a job. You may not receive any additional federal student aid if you are in default on any federal student loan until you have taken steps to bring your federal student loan out of default.
Collection fees
If your student loan is turned over to a collection agency, you may have to pay collection fees on top of the amount you already owe.
Legal action
In some cases, the government may take legal action against you to recover the money you owe. This could include filing a lawsuit against you or garnishing your wages.
As you can see, the consequences of defaulting on your student loan are serious. If you’re having trouble making payments, call your loan servicer right away to discuss your options. Taking action quickly can help you avoid some of the worst consequences of default.
If you’re struggling to make your student loan payments, there are options available to help you. You can learn more about these options by visiting the Department of Education’s website.
What about the borrowers in default?
All politics aside, it makes a lot more sense for the Biden Administration to focus on student borrowers who are struggling at this point.
This includes those who are in default on their loans, which means they did not make their scheduled student loan payments for at least 270 days before the pause on payments started in March of 2020.
Until October 2021, federal student loan payments are suspended, interest rates are set to 0% and there are no collections on defaulted loans. Outside of this forbearance period, however, loans in default can have a crippling effect on other areas of your life and finances.
How do you get out of student loan default?
If you’re in student loan default, it’s important to understand your options and take action to repay your defaulted student loans. The first step is to contact your loan servicer. They can help you understand your options and make a plan to get out of default.
There are a few ways to get out of default:
Repayment in full
You can repay the full amount of your loan, plus interest and any collection fees. This option may not be realistic for most people, but it will get you out of default quickly.
Loan rehabilitation
You make nine voluntary, on-time monthly payments within 20 days of the due date. After making these payments, you’ll work with your servicer to set up a repayment plan. This option can remove the default status from your credit report.
Loan consolidation
You combine all of your defaulted federal student loans into a single Direct Consolidation Loan. This option doesn’t get rid of your default status, but it does give you a new loan with a lower interest rate and monthly payment.
If you’re struggling to make payments on your student loans, there are options available to help you. Don’t wait to take action – the sooner you do, the better off you’ll be. Contact your servicer today to get started.
What to do if you can’t make your monthly student loan payment?
If you’re struggling to make your monthly student loan payment, don’t panic. There are several options available to you. The first thing you should do is contact your loan servicer. They may be able to offer you a different repayment plan that better fits your budget.
For federal student loan borrowers, your options may include switching to an income-driven repayment plan so you have a more affordable monthly payment, changing your monthly payment due date, streamlining repayment through a Direct Consolidation Loan, or opting in for deferment or forbearance.
Federal loans offer all sorts of protections to help make your monthly payments more manageable, so we don’t recommend federal loan borrowers pursue refinancing to avoid defaulting. Keep in mind that interest will continue to accrue during this time, so it’s essential to only use these options as a last resort.
In conclusion
You must pay your federal and private student loans on time to avoid going into default. If you’re struggling to make your payments, there are options available to help you get back on track. Don’t wait until it’s too late to take action.
