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The most Important Facts on Student Loan Delinquency and Default

Understanding the consequences of loan delinquency and default

There is a very small number of students who don’t have to borrow money to finance their educational costs. Educational loans are the best way for many of college students to gain academic degree because they generally can be deferred until graduation. This means that you will enjoy a grace period after you left school which can allow you to start working before you have to begin paying off your loans. The federal student loans provided by the US Department of Education like Stafford Loans, Perkins Loans or PLUS Loans offer up to nine months grace period after graduation to start repaying your student loans.

It is not unusual, however, for a large number of students to fall making their loan payments when they are due, which leads into delinquency. Delinquency means that you have fallen behind on your loan payments and your account is no longer current. For instance, if you miss to make your payments for a couple of months your loan lender may tag your account as “delinquent”, which in essence means that you owe back payments and are not yet in complete default.

Loan delinquency has numerous consequences which may include some of the following:

  • Extra fees and penalties
  • Bad credit effects
  • Collection efforts
  • Potential Default

The first you should do after you fall behind on your student loans repayment is to call your loan lender or lenders to settle an agreement on your payments and make a deal that works for both parties. Consecutive missed loan payments or extensive delinquency may lead into student loan default. Default comes about after 270 days of failure to pay on a federal student loan or 120 days of nonpayment on a private loan. Under most federal student loans your loan will be put into default after nine months of missed payments, and for majority of private student loans you have to miss about three months of payments to put your loan into default, though this depend on the specific loan lender.

Default cause severe consequences and some of them are following:

  • Bad credit record
  • Cancellation of federal student aid eligibility
  • Additional late fees and penalties
  • Possibility of going to court
  • Potential Default
  • Cutting off of Tax Return
  • Annulment of certain repayment benefits
  • Loss of professional license
  • Incapability to join the armed forces

The best way to avoid these serious consequences is to ensure you make your payments on time.  Defaulting on federal student loans is in general worse than defaulting on private student loans owing to the fact that the government can’t take action without the court’s intervention. However, it is less possible to default on federal student loans because there is a great deal of available repayment benefits with these loan plans.

Getting Out of Default

There are different federally authorized rehabilitation programs designed to help student loan borrowers to get out of debt giving them an opportunity to bring their loans out of default. Rehabilitation can repeal negative consequences of student loan defaulting. Participation in these rehabilitation programs is granted to students who take federal student loans.

Rehabilitation program involves a number of things. A representative from Default Collections will set up a monthly repayment plan for you and must approve the monthly payment sum required to participate in this 10-month program. First, borrower must make at least nine qualifying in-time loan repayments. In the case any of payments is missed, student has to begin paying off plan for the beginning. After completing of rehabilitation agreement, the underwriter transfers the loan to a lender and servicer and the loan is considered out of default. Borrower then once more becomes eligible to get the student financial aid such as student loans, scholarships or grants. In addition, he or she is able to apply for deferment and forbearance as long as these have not been exhausted for the period of default.

How to Avoid Going Into Default

Prior to taking out a student loan you should be sure that you will be able to make your loan payments when they become due. The best thing connected to federal student loans is that you don’t have to repay it until you left the school and they come with six to nine grace period after graduation. The interest on some loans starts to accumulate when the loan is given. Keep in mind that if you don’t have a subsidized loan then you will be responsible for that interest which starts to accrue right after the loan is given. However, if you realize that you are going to fall making your payments on time, you should contact your loan provider and utilize any available deferment, forbearance or repayment-adjusted option to avoid going into delinquency which often leads into student loans default.

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Student Loans Forbearance – the Most Important Facts

Forbearance is a way of putting off paying back your loans

Educational loans for college students provided by the federal government or private lending companies are a great chance to vast majority of US students to gain higher education. Still, Loan borrowers are obligated to repay their loan debts after they graduate or fall below half-time status. It’s not unusual, however, for students to have troubles making their payments. If you find yourself unable to make your planed loan payments, but don’t qualify for a loan deferment, you may consider forbearance as most advantageous option. Forbearance is a period of time during which lender of your student loan temporarily reduces or suspends your standard payments. Forbearance allows borrower to temporarily make smaller amount of payments, extend time of making payments or stop making loan repayment for a period of time.

Student loan forbearance vs deferment

The difference from loan deferment is that deferments don’t capitalize interest that accumulates during the time borrower delays the repayment term, and forbearance does. In other words, this means that over the longer period of time forbearance will cost you more than deferment, hence it should be utilized after all of your deferment time has been exhausted. Additional dissimilarity from deferments is that you can be granted forbearance if you are already in default.

Loans Eligible for Forbearance

You can apply for forbearance if your loan is taken under following student loan programs:

• Federal Family Education Loan Program (FFELP) which includes:

  • PLUS Loans
  • Federal Direct Loans
  • Some Private Student Loans

• Consolidation Loans
• Stafford Loans
• Supplemental Loans for Students

Types of Forbearance Available:

  • General Forbearance
  • AmeriCorps Forbearance
  • Teacher Loan Forgiveness Forbearance
  • Internship/Residency Forbearance
  • Loan Debt Burden Forbearance

Who is Eligible

You can ask your loan provider for forbearance option under certain circumstances which prevent you of making regular payments, such as health issues, financial hardship, unforeseen personal problems, natural disaster, military deployment or unemployment. Under certain conditions, you can automatically be given forbearance, for example, if you are involved in military service or US guard forces.

In addition, you are eligible for student loan forbearance in the following circumstances:

How to Apply

The application process is very simple and it takes only a few steps:

  • You should download the correct forbearance form
  • Complete the form and
  • Return the completed forbearance form to your loan provider.

It’s  not a common practice for forbearance to be automatically put into effect under certain repayment plan like some deferments are, and therefore it’s good idea to make a personally forbearance request to your loan servicer if you want to utilize this option. You should contact your loan lender or lenders at least 30 days before you want your forbearance to start to allow for enough processing time. They will contact in writing of the decision made. Keep in mind that it’s important to keep making payments until your forbearance is granted and be sure to make clear with your loan servicer which student loans you would like to be put into forbearance or if you’ll prefer to make postponement of your complete loan repayments. In case you’ve borrowed from multiple lenders, you have to make a forbearance request to each of them.

Federal and Private Education Loans Forbearance

If your student loan is provided from the federal student loan plan, you should make use of forbearance offered because the federal student loans generally come with a vast amount of forbearance time.

On the other hand, forbearance time available for private student loans can differ from one loan servicer to another and it is, therefore, very important that you learn about the actual forbearance time built in to your private student loan before you accept and sign the promissory note. In addition, you should be alter to the fact that some private student loan options do not offer any forbearance or deferment time, which means that you are required to make payments while you are still  at college. That is why is of vital importance to be familiar if any forbearance time is built in to your loan in advance, as you’ll probably want at least some forbearance time available, particularly while you are still in school.

How to Utilize Forbearance

When you are prepared to utilize forbearance time for your loan repayment, you just need to contact your lender via their website, a written application or over the phone. Once you utilize your forbearance, you must keep in mind that you’ll have to make payments once again and take note of that date to prevent missing to make payments.

It is very important to make your loan payments on time every month. It cannot be denied than taking student loans is a serious financial responsibility. The best solution for successful repayment of student loan debt is to do your emergency planning ahead of time. It’s a good idea to map diverse probable settings for your student loan borrowing and repayment. As a result you will know exactly what to do in case your life circumstances after graduation aren’t exactly what you hoped they would be. Keep yourself informed about all alternative repayment options before taking a loan. Evidently, it would be the best to make your payments on time, every time. Be aware that there are serious consequences if you repeatedly skip payments. However, as a borrower, you do have options in seeking alterations in the terms of your loan. If you have difficulties to manage your student loan repayments, or, for any reasons realize that you don’t have enough money to cover all of your expenses, the best thing to do is to think about requesting forbearance on your student loan.

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How to Postpone your Student Loan Repayment – a Loan Deferment

Examining a temporary suspension of loan payments

For most of the college students, repaying student loans is not easy process. According to some reports, average student in the USA holds a debt over $20,000 after graduation.  If you have problems making your student loan payments, you should contact straight away the organization that services your loan since you might qualify for a deferment, forbearance, or other form of payment assistance.

A deferment is a delay of payment on an educational loan. It works as long as your student loan lender is ready to grant you such a deferral, and it is, as a general rule, a more common alternative if you borrow money under the federal student loan plans like Stafford Loan or Federal Perkins Loan. This is for the reason that under the federal student loans deferment time is incorporated even with an automatic six-month period after graduation or failure below half-time status. Under the subsidized Stafford Loan or a Federal Perkins Loan, Direct or FFEL loan, you don’t have to pay interest on your educational loan during deferment. If you have an unsubsidized Direct Stafford Loan or FFEL, you are responsible for the interest during deferment. In case of your failure to pay the interest as it accrues, it will be added to the loan principal, and the amount you’re going repay will be higher. You have to apply for a deferment to the organization that handles your student loan, and you must continue to make payments until you’ve been informed your deferment has been granted. If not, you could become delinquent or go into default. However, there are some private loans which, similar to federal student loans, come with a wide range deferment options, so students can get a deferment for their private student debt also, which depends on his private loan provider’s willingness to grant him such benefit.

There are three categories of student loan deferments: In-School Deferments, Grace-Period Deferments and Out-of-School Deferments.

In-School Deferments

These categories of student loan deferments is put into practice automatically as long as student is attending school on the terms provided within his or her promissory note.

Grace-Period Deferments

These types of deferment are also normally put into effect automatically once student have graduated, or left school for whatever reason. These two types of deferments are available for any of student loan plans.

Out-of-School Deferments

Out-of-school-deferments are not automatically put into effect, for that reason you need to request them from a student loan lender in order to accomplish it. Usually, you can acquire this type of deferment in case you undergo certain life situations that prevent you from regular loan repayment like financial limitations, health issues or unemployment.

To qualify for a student loan deferment you must meet certain requirements:

  • You must not be more than 270 days behind in loan payments (or six months behind for an unemployment deferment on a FFEL),
  • You must be unemployed or meet certain rules for economic hardship (limited to 3 years) or
  • You must be enrolled at least half time in an eligible college or university or study full time in a graduate partnership program or an official disability rehabilitation program.

Military Service Deferment and Post-Active Duty Student Deferment

You may be eligible for a deferment as well if you join the U.S. Armed Forces or National Guard. An active duty military deferment is obtainable to borrowers in the Direct, Perkins Loan and FFEL plans who are called to active duty during a war or other military operation or national emergency. A borrower of a Direct, FFEL, or Perkins Loan who is a member of the National Guard or other reserve part of the U.S. Armed Forces (current or retired) and is called or ordered to active duty while enrolled at least half-time at an eligible school, or within six months of having been enrolled at least half-time, is eligible for a deferment during the 13 months following the conclusion of the active duty service, or until the borrower returns to enrolled student status on at least a half-time basis.

Economic Hardship Deferment

If you are borrower under a Direct, Federal Perkins Loan or FFEL, you may be eligible for an economic hardship deferment which is obtainable for a maximum of 3 years if you are experiencing an economic hardship under to US federal regulations.

How to Apply

To apply for a student loan deferment you are required to submit a deferment request to your loan provider along with documentation of your eligibility for the deferment. You should keep in mind that if you are in default on your loan, you are not eligible for a deferment or forbearance.

In order to make a deferment request, you need to contact your student loan servicer since each loan lender has a different deferment policy. Depending on the lender’s internal policy, you will be able to get your request done online, via phone or filling out a written deferment application. Furthermore, you have to negotiate an actual deferment time you have remaining on your student loan to your loan lender, because the largest part of student loans come with a particular amount of deferment time included. Usually, deferments are granted in six-month periods.

Benefits and Drawbacks of Utilizing Deferments

Deferments are great option in case you are not capable to make a payment on your student loan for no matter what reason and don’t mind pushing back the time it takes to repay your loan. On the other hand, utilizing deferment may be “saving” money option in the short-run, but bear in mind that you are in essence postponing the term of your loan, which may result in a higher overall loan cost. Anyway, it is recommended that you don’t hesitate to use your deferments if it comes to an alternative between letting your student loans fall into default, and delaying when your loan will be repaid.

When you are taking a student loan, be aware of the amount of deferment period that comes with a particular loan option. This will allow you to plan things better over time and make you feel secure in case you have to postpone your educational loans repayment for whatever reason.

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