What Does Student Loan Default Mean?

What does it mean to default on your student loans? Defaulting on your student loans has serious consequences that can affect your credit score and your ability to get future loans. If you’re having trouble making your student loan payments, talk to your loan servicer about your options.

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Introduction

Student loan default occurs when a borrower fails to make payments on their student loan according to the terms of their promissory note. The consequences of default can be severe, and it is important for borrowers to understand what default means and how to avoid it.

When a borrower defaults on their student loan, the entire balance of the loan becomes due and payable immediately. In addition, the borrower will lose eligibility for any future federal financial aid, and the loan will be reported to credit agencies, which can damage the borrower’s credit score. Default can also lead to wage garnishment, tax refund offset, and collection fees.

Default is serious business, and borrowers should do everything they can to avoid it. Borrowers who are struggling to make their payments should contact their loan servicer as soon as possible to explore their options. These options may include deferment or forbearance, which can help borrowers temporarily postpone or reduce their payments. Borrowers should also consider consolidating their loans or enrolling in an income-driven repayment plan, which can lower their monthly payments based on their income and family size.

No matter what option you choose, it’s important to stay in communication with your loan servicer and keep making payments on your loans until your default is resolved. If you need help understanding your options or resolving your default status, don’t hesitate to contact a Student Loan Default Resolution Specialist.

The Consequences of Default

When you default on your student loans, it means you have failed to make payments on your loan according to the terms of your promissory note. If you are in default, you lose eligibility for many of the benefits that are available to borrowers who are repaying their loans according to the terms of their promissory note. For example, if you default, you will no longer be eligible for deferment, forbearance, or repayment plans. In addition, the entire unpaid balance of your loan and any interest becomes immediately due and payable. If you default on your Federal Family Education Loan (FFEL) Program loan or William D. Ford Federal Direct Loan (Direct Loan) Program loan, the entire unpaid balance of your loan may be assigned to the Department of Education for collection. This means that we may take action to recover the money you owe us through one or more of the following methods:

-Wage garnishment
-Treasury offset
-Tax refund offset
-Credit bureau reporting
-Litigation

Steps to Take If You Can’t Afford Your Payments

If you’re struggling to make your student loan payments, don’t wait until you default to take action. Defaulting on your loans has serious consequences that can last for years.

There are several things you can do to avoid default, including:

– contacting your lender or servicer to discuss your options
– consolidating your loans
– enrolling in an income-driven repayment plan
– deferring or forbearing your loans
– changing your repayment plan

If you’re already in default, there are a few things you can do to get back on track, including:

– entering into a repayment plan with your lender or servicer
– consolidating your loans
– Rehabilitating your loans
– refinancing your loans

Rehabilitating Your Loans

If you default on your student loans, you will lose eligibility for many of the repayment options and deferments that are available. You will also be responsible for the entire balance of your loan, plus any interest that has accrued. In addition, your loan will be turned over to a collection agency and your credit score will be negatively impacted.

To rehabilitate your loans, you will need to make nine full monthly payments within 20 days of their due date. Once you have made these payments, you will once again be eligible for repayment options and deferments. Your credit score will also improve.

Consolidating Your Loans

If you have multiple student loans, you may be able to consolidate them into one loan with a single monthly payment. Consolidating your loans can help you save money on interest and simplify your monthly payments, but it’s not right for everyone. You should consider consolidating your loans if:

-You have multiple student loans with different interest rates and want to lock in a fixed rate
-You want to simplify your monthly payments by combining multiple loans into one
-You’re struggling to keep up with multiple monthly loan payments
-You want to release a cosigner from your loan obligation

If you consolidate your loans, you’ll have one loan with a single monthly payment. Your interest rate will be the weighted average of the interest rates on your existing loans, rounded up to the nearest one-eighth of 1%. You won’t lose any of the benefits that are tied to your current loans, such as deferment or forbearance.

Refinancing Your Loans

If you have multiple student loans, you may be able to refinance them into a single new loan. This can help simplify your monthly payments and potentially lower your interest rate, saving you money over the life of your loan. If you have good credit and a steady income, you may be able to qualify for refinancing with a private lender.