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Student Loans in Default Consequences and Tips to Get Out

With the rising cost of college tuition along with lowering job prospects, it isn’t surprising that more and more people have difficulty paying off their student loans. There has been a marked increase in student loans in default since 2008 and the figures of defaulted student loans have risen for more than $80,000 from last year.

Delinquency and default

Failure in making your loan payments when they are due leads into delinquency. A delinquency period starts on the first day after you miss to make your loan payment. During the first 15 days you will receive at least one collection letter or written notice from your loan lender. After your student loans have been in delinquency for nine months (270 days), your loan holder will declare your loans in default (for the largest portion of private student loans this period is three months). In case you have trouble in making payments, it is strongly advised to contact your lenders as soon as possible, as they may have some special “default aversion” programs to help you during delinquency or you can negotiate with them to postpone your payments to help you find the solution for the problem. The most important thing is to contact your loan holder as soon as you receive their notice. Avoiding doing this can lead into deeper financial troubles and some of the student loans in default consequences are the following:

  • Damaged credit record
  • Cancellation of Federal Student Financial Aid eligibility
  • Restriction of Federal benefits like Social Security retirement benefits and Social Security disability benefits, but not Supplemental Security Income
  • Garnishments of your wages (up to 15% of your income)
  • Cancellation of certain repayment benefits
  • Extra fees and interest that are added to the original loan amount
  • Possibility of going to court
  • Cutting off of Tax Return
  • Loss of professional license.

Federal Student Loans in Default

Federal student loans offered by the US Department of Education such as Stafford Loans, Perkins Loans or PLUS Loans provide up to nine months grace period after graduation which is intended to help you find job or some other source of financing to begin repaying your student loans. In addition, federal student loans offer various repayment plans that are designated to meet different needs of the borrowers as well as student loan consolidation option. However, there is a large number of Federal student loans in default. After you have defaulted on your Federal student loan, the government goes for your wages garnishment without the court order and can independently take up to 15% of your paycheck because Federal student loans are not discharged in bankruptcy proceedings (except in limited circumstances).

Federal student Loans – Getting Out of Default

There are a few things that you can do to get yourself out of default. You have the option to:

  • consolidate your loans
  • rehabilitate your loans or
  • renew your loan eligibility.

Federal Student Loans Consolidation

Student loans consolidation option allows you to replace several loans like Stafford Loans, Perkins Loans or PLUS Loans with just one and to repay all loans with this one at lower interest rates and for extended period of time. Once you consolidate your loans your loan will be out of default. In addition, you will be able to get income sensitive repayment plans, you will no longer get collection calls, you will be eligible for deferments and forbearance, and you will be eligible for new loans.

Student Loans Rehabilitation

Rehabilitation can call off negative consequences of student loans in default. This program involves several steps. First, an officer from default Collections will arrange a monthly repayment plan for you and you will have to agree with the monthly payment sum required to participate in rehabilitation program. You have to make at least nine on-time loan repayments to qualify. After completing of rehabilitation agreement, the underwriter transfers the loan to the loan servicer and your loan is considered to be out default. Furthermore, you will be able to apply for deferment and forbearance as long as these haven’t been exhausted during the period your loan was in default.

Renewing Student Loans Eligibility

You can apply for new loans even though you are in default, but you have to work up your default status before that. First thing you should to is to call your loan lender and make a repayment agreement. After that you must keep up with payments and after six consecutive monthly payments you will reestablish your eligibility and be able to receive new student loans and grants.

Note: You must apply for any of these options to happen.

Private Student Loans in Default

With private student loans you do not have the advantage of a nine months period in case you miss payments on your private student loan. You should bear into mind that if you are a private student loan borrower, your loan will usually go into default as soon as you miss the payment, although some private loan lenders offer three months period before declaring your loan defaulted. This default period will be outlined in your loan contract. Therefore, you should carefully review your private student loan contract to learn what are your rights and obligations related to the loan. For the wage garnishment in case of private student loans, the lender must get a court order and the rules governing this sort of garnishment vary from state to state.

Private Student Loans – Getting Out of Default

There are fewer options for getting out of default for private loan borrowers like Sallie Mae or Wells Fargo than for people who have default on their federal loans. One of available alternatives is forbearance, which means that the borrower only has to make interest payments for a period of time approved by the lender. Although this may provide some temporary relief, it actually increases the sum you have to pay back, since the principal remains the same and the interest continues to accrue.

Being into default does not have necessarily negatively to affect your finances, career or life. All you have to is not to panic but to take the first steps in the direction toward solution of your problem. Contact your loan servicer and ask for assistance. Loan forbearance, consolidation or rehabilitation program may help you to get out of default.

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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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