Defaulted student loans are typical among student loan borrowers for both federal and private student loans. So if you have defaulted on the repayment of your student debt, you are not alone.
By the end of reading this free resource, you will know the following about student loans default.
- When is a student loan considered a default?
- What happens if you default on your student loans?
- How long do student loans stay in default?
- If you are on default, who do you call?
- How to fix your defaulted student loan?
It is entirely normal to default on your student loans. According to a resource on EducationData, a whopping $124.4 billion in student debt has gone into default. One out of every ten Americans has defaulted on student loans. EducationData also indicated that around 10.8% of all student loan borrowers default within their first year of repayment.
So when is your student loan considered as defaulted student loans?
Your student loans go into default when you miss out on payments for up to 270 days for federal student loans and up to 120 days for private student loans.
But if you make some special arrangements to negotiate with your lender within this period before default, you can avert the consequences. You can either get a student loan deferment or forbearance.
When your student loan is in default, your lender or loan servicer will send you a late payment notification via mail or email. So, what if, for some reason, you didn’t see or receive the late payment notification? In that case, you can use the AnnualCreditReport free resource to check your credit report. The defaulted student loan will show on your credit report.
Now you know when your student loan is considered a default. Let’s find out what happens if you default.
What happens if you default on your student loans?
Like any other loan, defaulting on your student loans has some severe consequences that could impact your financial stability. Before your student loan goes into default, it first goes through a delinquency state(one to three days after your payment is due). You will receive letters, emails, or calls from the lender reminding you of the situation.
Depending on the type of student loan, if you don’t make payments or negotiate with your lender or servicer within 90 days, you will be reported to the credit bureau. If your student loan continues to be in a delinquency state after 120 days (for private loans), it goes into default.
Both federal and private student loans default has serious consequences. Let’s start with the effects of defaulting federal student loans.
Consequences of Defaulting Federal Student Loans:
If your federal student loan goes into a default state, you could face the following consequences;
- You won’t be eligible for any additional federal student aid.
- Your credit score gets hit with a negative report which could affect your ability to obtain additional loans.
- If you have a job, the federal government can garnish your wages. Your employer may be required to withhold around 15% of your salary and transfer it to your loan servicer.
- You may lose your tax refunds or federal benefits until your loan gets out of the default state. If you have a joint tax refund with your spouse, the IRS can garnish their tax refunds too.
- Suppose your loan servicer takes you to court. In that case, you could incur court fees, attorney’s fees, or any other cost your servicer incur in trying to collect your student debt.
- You won’t be eligible for a student loan forbearance or deferment.
Consequences of Defaulting Private Student Loans:
The consequences of defaulting on private student loans depend significantly on your lender. Below are some negative effects you can expect;
- You get sued by the lender.
- The lender reports the defaulted student loans at the credit bureau, which could stay for up to 7 years on your credit report.
- If you lose the lawsuit to your lender, your wages could face garnishment. Depending on the state law, you could even lose your home or any valuable property you own.
Whether you have federal or private student loans, try as much as possible to ensure it doesn’t go into a default state. If you are facing any financial hardship, you can negotiate with your lender or servicer. You can also apply for student loan forbearance or deferment.
How long do student loans stay in default?
If you manage you pay your student loan in full after it goes into default, the default state will remain in your credit report for seven years. These seven years are calculated from the day you made the final payment. So what happens if you never pay defaulted student loans?
The longer you go without paying your defaulted student loans, the more your credit score will tank. You can also face potential lawsuits, wage garnishments, to name a few.
Your lender or loan servicer can sell your student loan to a debt collection agency. This agency will send you letters, emails, or even call you to collect the debt. If you don’t make the payment or come into an agreement, you will face all sorts of legal consequences.
It is important to note that your student loan will not magically disappear if you don’t pay it off. Unless in the course of your death, your student loan remains active.
Who do you call if your student loan is in default?
Depending on the type of student loan you have, you can contact your lender or loan servicer. You can immediately negotiate with them to work out a suitable solution for getting back on track.
But what if you don’t know your loan servicer? In this case, you should call the Federal Student Aid Center (FSAIC) at 1-800-433-3243. If your student loan has gone into a collection agency, make sure they are not scammers by inquiring with your lender or The Department of Education.
Please don’t provide any information to a collection agency until you verify their credibility with your lender or department of education. Report any suspicious collection agency.
How can you fix your defaulted student loans?
There are a couple of options you have to get out of your defaulted student loans. These options are; Rehabilitation or Direct Consolidation(for federal student loans) or contact a Student Loan Attorney(for Private Student Lonas).
Rehabilitation:
When your student loan is in default, you can go into a student loan rehabilitation program to get out of the default state. Student loan rehabilitation is the process of making nine consecutive payments within ten months to your loan servicer. The amount you have to pay is around 15% of your discretionary income.
Student loan rehabilitation is only possible with federal student loans. After you successfully rehabilitate your student loans, you will get out of the default state, making you eligible for forbearance or deferment.
Rehabilitation also gets student loan defaults out from your credit score. For more info, check this free resource on student loan rehabilitation.
Direct Consolidation:
Another option to get out of student loan default is through direct consolidation. If you have multiple federal student loans, you can combine them into one student loan. So instead of dealing with multiple payments to different loan servicers, you only have to make single payments to one loan servicer.
Once you consolidate your student loan, you will have access to additional loan repayment plans, which will be calculated based on your income. Again you can only consolidate federal student loans. There are other options for private student loans, which we will discuss later in this article.
To read more about federal student loan consolidation, you can check this resource on the FederalStudentAid official website.
Contact a Student Loan Attorney:
The best way to get out of a private student loan default is to contact a certified student loan attorney. You might be thinking of filing for bankruptcy, which most lawyers will advise you against it. Student loan attorneys can quickly get you out of your private student loan in default.
Some attorneys can even save you up to 70% of your private student loans. You can check student loan attorneys near you and call one up.
Bottom-Line:
Whether your defaulted student loans are federal or private, don’t panic because there is always a solution to get you out of this situation. The worst thing to do is to ignore your student loan in default completely.
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