After you graduate, leave school, or drop below half-time enrollment, you usually have anywhere from six to nine months before you must begin repayment of your student loans. Most likely, you will receive information regarding your repayment as well as notification by your loan provider or the date loan repayment officially begins. If your student loan is in default, you now have impressively more options than ever before to repay your loan.
Once a loan is declared in default, you are no longer entitled to any deferments or forbearances. You also may not receive additional student aid if you have defaulted student loans, until you have made payments of an approved amount for at least six months.
Addressing defaulted student loans
There are many serious and long-lasting consequences that may occur if your student loan is defaulted. If you default, the maturity date of each promissory note is accelerated, making payment in full immediately due. If you continue to not repay your student loan, it may lead to several negative consequences over the long-term future. Some of the consequences include having your wages garnished, federal income taxes withheld, and even losing your eligibility for other federal loans.
There are now more ways than ever to repay defaulted student loans. Certain programs may be able to even remove your loan from its defaulted state. Each situation and need is different, therefore choosing which repayment option is right for you depends on what objectives you have.
Once your loan is assigned to a guaranty agency, many steps may be taken in order to recover the outstanding balance that is due. You may have to pay extra collection costs after your loan is assigned to a private collection agency for collection. Also, the U.S. Treasury may withhold your payments toward repayment of your loan. You also may be subject to Administrative Wage Garnishment, where your employer may be required to forward 10 to 15 percent of your disposable pay toward the repayment of your loan. The department may also take legal action against you to force that you repay your defaulted student loans. Finally, credit bureaus may be notified and your credit rating will suffer. This is an extremely large consequence because good credit is something that is hard to recover once it is lost. Bad credit can restrict you from major purchases, renting an apartment, and qualifying for future loans.
Ways to help improve your credit record after defaulted student loans
If you fail to repay your defaulted loan, it can damage your credit record very seriously. In fact, consumer reporting agencies may continue to report an account for seven years from the opening date. However, there are things that you can do to at least partially restore your credit record. Your options for helping your credit report include: repaying the loan in full; consolidating your student loan through loan consolidation programs; or rehabilitating your loan through loan rehabilitation programs. Student loans that are in default can negatively affect you and your credit in many different ways. It is important to make a strong effort to avoid this at all costs.
By Kristin Lockwood