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 Default is the big, bad word in student loans - this is something you want to avoid at all costs! And with so many options available to you, there's no reason for you to default on your student loans. What is default, and why should you be afraid of it? Read on...
We've already discussed in this section how important it is for you to consider your options carefully, because student loan repayment can be a 10 to 30 year financial commitment. If you start missing payments - even one, your loan could be in delinquent status, and if you miss a payment for more than 270 days, your loan goes into default. Delinquency can adversely affect you. How? If you are late in making payments, it will impact your credit rating. You may be denied future education or consumer loans, and later on in life, you may not be able to obtain a mortgage or even the ability to rent an apartment if you make late payments. If you're having difficulty making regular monthly payments, contact your lender or servicer immediately to make other arrangements to avoid further delinquency and, much worse, default.
The consequences of student loan default are serious and extensive - here's what you need to know.
- Defaulted loans are reported to national credit bureaus and can remain on your credit report for seven years.
- A defaulted loan may be turned over to a collection agency. They often charge collection fees as well as attorney costs, all of which become part of your debt.
- A defaulted loan is listed as adverse credit on your credit report, which can mean not being able to obtain a credit card, car loan or mortgage.
- A defaulted loan will make you ineligible for additional financial aid, deferments or loan consolidation.
- A defaulted loan can cause you to lose income tax refunds, and refund amounts will be applied to student loan debt.
- Holds may be placed on your college records.
- A defaulted loan can lead up to wage garnishments - up to 10% of your net wages.
- A defaulted loan may jeopardize employment by city, county, state or federal agencies or cause termination, if you are already employed.
- If you need a license to practice in your profession, it may be revoked, cancelled or not renewed.
- A loan, whether or not in default, cannot be discharged in bankruptcy in most cases.
Remember, you've made a commitment to yourself and your future. To prevent defaulting on a student loan, maintain copies of your student loan records and keep your mailing address and email address current with your lender and servicer. Ensure that your student loans are deferred while you are in school and communicate your financial situation with your lender or servicer to determine the best plan to repay your loans and to maintain a good credit record. It's vital to contact your lender if you are having difficulty with repayment before your account becomes delinquent. If you do this, you have a good chance of being able to steer clear of default!
How can consolidation help me manage my debt?
Loan consolidation can offer you many benefits to help manage your education debt. Here are a few of them:
- Lower monthly payments by as much as 45%
- A single monthly loan payment on one bill
- Low, fixed interest rates
- No application fees or credit checks
- A variety of flexible payment plans that allow you to design a repayment plan that best suits your financial needs
- Special borrower benefits that can lower the amount of interest paid over the life of the loan
- No penalties for prepayment, so you can repay your loan early at any time
- A personal loan counselor who can answer your questions and help you through the application process
Is there a downside to consolidation?
Although consolidation can truly simplify and help many students manage their monthly payments, there are some cases when consolidation may not be right for you.
- If you are close to paying off your student loans, it may not make sense to consolidate or extend your payments
- Remember that by extending the years of repayment for your loans, you may be increasing the total amount you have to pay in interest. Be sure to discuss your options with a loan counselor before you select a payment plan.
- Not all programs offer the same borrower benefits, make sure you choose a reliable program that offers good borrower benefits and reliable service.
What kind of loans can I consolidate?
You can consolidate any of the following loans:
(Combined loan amounts must equal $7,500 or more to consolidate)
- Federal Stafford Loans, unsubsidized and subsidized [including Guaranteed Student Loans (GSL)]
- Direct Stafford Loans, unsubsidized and subsidized
- Federal Supplemental Loans for Students (formerly Auxiliary Loans to Assist Students/ALAS and Student PLUS Loans)
- Federal Perkins Loans, formerly National Defense/National Direct Student Loans (NDSL)
- Health Professions Student Loans, including Loans for Disadvantaged Students (HPSL)
- Federal Insured Student Loans/FISL
- Federal PLUS (Parent) Loans/PLUS
- Direct PLUS Loans
- Federal Consolidation Loans
- Consolidation Loans
- Nursing Student Loans (NSL)
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