Student Loan Default
Stay out of Default!
Student loan repayment can be difficult for some grads to manage, especially in situations where multiple loans are involved. Federal loans may allow a six to nine month grace period after graduation, which gives most graduates time to get settled into a job and put a few paychecks into a bank account. But combinations of business environment and economic fluctuations in some instances do not allow for a situation in which repayment can be managed.
When you default on your student loans you have essentially failed to maintain agreed upon payments. Remember that promissory note you signed when you were approved for the loan? That legally binding financial document stipulates that payments of a certain amount be rendered to the lender by a certain date each month.
Defaulting on your student loans is a worst-case scenario and can typically be avoided with proper planning. It is best to remember that no lender wants a borrower to go into a default status. And most lenders, both Federal and private, are willing to make repayment on defaulted student loans simple and convenient.
Federal Loan Default
Should you default on your Federal Stafford, Perkins or Direct Loan, any pre-existing repayment program is null and void. The balance of your student loan is immediately due to the lending agency and all defaulted loans become the responsibility of the Department of Collections. It is very important that you contact the FSA and address the default situation. A loan officer will assist you in finding a suitable repayment option. Options available for you if your Federal loan is in default include a Federal Family Education Loan (FFEL) consolidation, or loan rehabilitation.
Loan Consolidation
Before you let your loans go unpaid or default, use the lender's resources available to you. Most educational lending services provide a student loan consolidation program that makes it easy to refinance one or multiple loans. Student loan consolidation means you pay one monthly payment you can afford, and avoid the penalties for defaulting.
Loan Deferment
Another option may be loan deferment. If you are going back to school at least half-time, you are eligible in many cases to defer repayment of your student loans. Are you going to be unemployed for a period of time? Deferment may be an option in this situation as well.
Economic Hardship
What if you are not going back to school and you are employed, but you make so little money that you cannot afford to make your student loan payments? You could apply for economic hardship, which means your income is assessed in conjunction with average poverty levels. If your income falls below the accepted level then you may qualify for economic hardship status.
It is important to your financial future that you explore all your repayment options before you let your loan default.
