Loan Default
Many students must take out loans in order to afford the cost of higher education at most colleges and universities. Fortunately, student loans can be obtained from a variety of sources, so college does not have to be completely out of reach for anyone. The United States Federal Government is one source of many student loans for Americans.
The catch with student loans, of course, is paying them back. If you have a federal student loan, you will be given between six and nine months after graduation to begin repayment. Information about repayment will be sent to you by a guaranty agency or the United States Department of Education. From that point on, repaying your student loans should be a fairly straightforward process.
Many people have trouble repaying loans on time for a variety of reasons. If you fail to make payments on time, your loan will be defaulted. The lender will then have to go through “due diligence” in attempting to contact you and collect your loan payment. Federal student loans will be considered defaulted after 270 days of delinquency if your payment schedule is monthly, or after 330 days if your payments are less frequent. At that point, your loan is eligible to be “accelerated,” meaning the entire balance of principal and interest will be due in a single payment.
Proceeding with a Defaulted Loan
Defaulted government student loans, as you might imagine, present many problems. If your loan is defaulted, you may not be eligible for new loans you are trying to obtain, and your credit record may be tarnished significantly. You may be subjected to wage garnishment, and legal action may be taken against you. Certain procedures must be followed in order to do as little damage to your credit history and your financial state as possible, while still satisfying the terms and conditions of your loan.
If you would like to establish a monthly rate that is affordable to you, customer service representatives at the United States Department of Education can be contacted to assist you. If you would like to reinstate your eligibility for a HUD or VA loan, you will have to repay your loan in full, consolidate it through the government loan consolidation program, or rehabilitate it through the government loan rehabilitation program. To improve your credit record as much as possible, you can also repay, consolidate, or rehabilitate your loan. Defaulted government student loans can be repaid by mail or over the phone with a credit card.
It is important to address defaulted government student loans as quickly as possible. The United States Department of Education or the guaranty agency you are assigned to will make repeated efforts to collect, and if you do not respond, you risk having your wages garnered, your eligibility for loans decreased, your total costs increased with collection costs, and your credit record greatly damaged.
More Resources
If you are concerned about your student loans or if you would just like more specific information, the United States Department of Education Federal Student Aid Collections Office can provide thorough explanations and answers to most questions. Their Web site, www.ed.gov/offices/OSFAP/DCS/index.html, provides links to specific questions, answers, and general information about defaulted government student loans, as well as contact information.
Many services exist that can help you with such actions as consolidating your loans. CollegiateFunding.com, for example, is a free resource available to college students at any level. It provides a great amount of useful information about federal student aid and repayment options, as well as links to specific applications and forms.
By Kristin Cleveland