Oh no, you’ve defaulted on your federal student loan! Don’t worry, it’s not the end of the world, but it’s definitely not a good thing. Defaulting on a loan can have some pretty serious consequences, so let’s dive into what happens when you miss those payments and what you can do about it
First things first, let’s define “default.” In the world of federal student loans, you’re considered in default if you haven’t made a payment for 270 days (that’s about 9 months). Yikes!
Now, let’s talk about the not-so-fun consequences:
- Wage garnishment: Ouch! The government can take a chunk of your paycheck without even going to court.
- Tax refund interception: Say goodbye to that sweet tax refund. It’s going straight to your loan.
- Social Security offset: Even your Social Security benefits aren’t safe.
- Damaged credit score: This one hurts. Defaulting can seriously tank your credit score, making it harder to get loans, rent an apartment, or even land a job.
- No more federal aid: Forget about getting any more federal student loans or grants until you deal with the defaulted loan.
So what can you do if you’ve defaulted? Don’t despair! There are ways to get back on track:
- Contact your loan servicer: They’re the ones managing your loan, so they can help you figure out your options.
- Rehabilitation: This involves making a series of on-time payments, usually for nine months, to get your loan out of default.
- Consolidation: Combine your defaulted loans into one new loan with a lower interest rate, making repayment more manageable.
- Income-driven repayment: This plan bases your monthly payments on your income, making them more affordable.
Remember, the sooner you address the default the better. Don’t let it snowball into a bigger problem. Reach out to your loan servicer and explore your options. You’ve got this!
Here are some additional resources that might be helpful:
- Consumer Financial Protection Bureau (CFPB): https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-default-on-a-federal-student-loan-en-663/
- Federal Student Aid: https://studentaid.gov/manage-loans/default
- National Consumer Law Center: https://www.nclc.org/issues/student-loans.html
Remember, you’re not alone in this. Millions of Americans have defaulted on student loans. There are resources available to help you get back on track.
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For many student loan borrowers, the amount they pay toward their debt each month is not insignificant. In fact, the average monthly student loan payment is currently $393, which can be an overwhelming expense if youre struggling to make ends meet.
However, should you develop a pattern of neglecting your student loan payments, you face the possibility of your loans eventually entering default, which can have serious consequences.
As soon as you miss a payment on your federal student loans, the default process begins. These are the three steps that lead to defaulting:
- Your federal student loans become delinquent the day after you miss a payment, and you could be assessed late fees.
- When an account remains delinquent for 90 days or longer, your loan servicer notifies the three major credit bureaus, resulting in the account showing up on your credit report and potentially lowering your credit score.
- Following 270 days, or approximately nine months, without making late payments, your federal loan enters default and your debt may be turned over to collection agencies.
Since the CARES Act was passed in March 2020, federal student loan borrowers have not had to worry about missing their monthly payments because of the Covid relief. Federal student loan payments are suspended until October 202021, interest rates are fixed at 200 percent, and no collections are made on delinquent loans.
However, loans that are in default after this forbearance period may have a disastrous impact on other aspects of your life and finances. Heres what you need to know:
What happens if you default on your federal student loans
Defaulting on your federal student loans comes with some serious consequences. Here are just a few examples highlighted on the federal student aid website:
- lose your eligibility for federal benefits such as deferment, forbearance, and repayment plans
- Get cut off from additional federal student aid
- Get a part of your salary garnished or tax refunds withheld in order to pay back a loan that has fallen behind.
- Risk of being sued for debt collection by the loan servicer
- Put Social Security retirement benefits at risk
- Negatively impact your credit score
Monitoring your credit score
You can see how your decision to pay off or not pay off your student loans affects your financial situation by monitoring your credit score.
What happens if you default on your student loans? | Explainomics
FAQ
What is considered a defaulted student loan?
What happens when a loan is defaulted?
What happens to defaulted student loans after 7 years?
Can student loans be forgiven after default?
What if I’m in default on a federal student loan?
You may not receive additional federal student aid if you are in default on a federal student loan until you take steps to bring your federal student loan out of default. If you are behind on your federal student loan payments and being contacted by a debt collector, you may be able to arrange repayment options to get out of default.
How many federal student loans are in default?
Approximately 7.5 million borrowers have federal student loans in default, according to federal data, and could qualify. This borrower tally includes defaulted loans held by the Education Department and defaulted FFELP loans held by guaranty agencies.
How do I get Out of default on a student loan?
You have three options for getting out of default: loan rehabilitation, loan consolidation, or repayment in full. 1. Loan Rehabilitation To rehabilitate most defaulted federal student loans, you must sign an agreement to make a series of nine monthly payments over a period of 10 consecutive months.
What percentage of student loan borrowers default?
Student loan default can feel overwhelming. But if you’ve defaulted, you’re not alone: Within three years of entering repayment, 9.7% of student loan borrowers default, according to the Education Department.