As unemployment rises, more and more people are having trouble making ends meet. The government has many programs to help you prevent student loan default. If you are going through a difficult time, one of the best things you can do is communicated with your lender and try to create a solution before your loan goes into default.
Your lender will attempt to collect the loan up until your student loan payments are over 270 days past due. At this point, your loan is turned over to the US Department of Education or one of the guaranty agencies.
Where your loan will go depends on the type of loan you have. If you have a Federal Family Education Loan (FFEL), your loan will first be assigned to a state guaranty agency. It may later be sent to the Department of Education. Both Direct Loans and Federal Perkins Loans will be assigned directly to the Department of Education to be collected.
There are numerous consequences of defaulted student loans. If you have a defaulted student loan, your loan will be accelerated. What this means is that the full balance of the loan, plus interest and fees is now due. You will no longer be eligible for any type of forbearance plan or deferment. You may make partial payment to either the guaranty agencies or the Department of Education, however.
Many people do not understand the seriousness of federal student loan default. Unlike most debts, student loan debts are not dischargeable in a bankruptcy. And, there is no statute of limitations on them. This means they can be collected 30 years from now.
In addition to this, the IRS may withhold any tax refunds you have coming due until your loan is paid in full. If you have a solid income, it is likely that you will be sued and the government will get a wage garnishment against you. This means that they will get a portion of your paycheck each month before you do. The guidelines vary, but typically they can garnish up to 15% of your disposable income.
If you are a Federal employee, you will be un-voluntarily entered into the Federal Employee Salary Offset Program. This means that 15% of your monthly income will go directly to the government! Sounds fun, right?
Obviously if you are facing student loan default, you want to get the situation rectified right away. Two possible solutions are student loan rehabilitation and student loan default consolidation.
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Student loan payments are something that millions of American’s have. As times get tough and unemployment continues to rise, many people are concerned about student loan default.
If you are not yet that far behind on your payments you should first get information on refinancing student loans. This may be an option for you.
If this is not an option, you should know that one of the best things you can do is communicate with your lender. The federal government has many programs in place designed to help you avoid student loan default.
If you are not yet in default, but are concerned about making your payment, the first thing you should consider is income based repayment.
Income Based Repayment is designed for people who have low incomes or people who are facing tough times. It is designed to help bring your payments back in line with you income so that you can avoid the potential of default. To learn more, check out my post about the new program.
If income based repayment isn’t an option for you, there are still ways to help you make your student loan payments.
The first, and one of the best, is deferment. If you have gone back to school, are unemployed or going through other financial hardship, you may qualify. If you are qualified for loan deferment, your loans can be deferred for s specific period of this time. During this time, your loan will not accumulate interest.
If your lender tells you that you are not qualified for a loan deferment, you may still qualify for forbearance. You may still be required to make student loan interest payments, but forbearance will help reduce (and possibly eliminate) your student loan payment for a specific period of time. Unlike a loan deferment, interest does still accrue.
If you have recently graduated from school, you also might want to consider graduated payments. This payment option offers a lower payment in the early years and your student loan payments will increase as time goes on. The down side to this is that interest will continue to accrue, so you will pay more over the life of the loan.
If you are already facing student loan default, you may want to consider Student Loan Rehabilitation
To learn more, click here.
If you have bad credit, but are looking to return to school, you may want to check out this article on student loans for bad credit. It provides you with a comprehensive look at your options
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