Repay Student Loans » loan default,

Advantages of rehabilitating your defaulted student loan(s)

admin — Fri, 01 May 2009 19:26:05 +0000

You may want to consider rehabilitating your defaulted loan(s). Advantages of rehabilitation include:

Your loan(s) will no longer be considered to be in a default status.
The default status reported by your loan holder to the national credit bureaus will be deleted.
You will be eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility.
Wage garnishment ends and the Internal Revenue Service no longer withholds your income tax refund.

If you are a Direct Loan Borrower:

To rehabilitate a Direct Loan, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the U.S. Department of Education (Department). Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) will be returned to the Direct Loan Servicing Center.

If you are a FFEL loan borrower:

To rehabilitate a FFEL, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) may be purchased by an eligible lending institution.

If you are a Perkins loan borrower:

To rehabilitate a Perkins Loan, you must make nine (9) on-time, monthly payments of an agreed amount to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan(s) will continue to be serviced by the Department until the balance owed is paid in full.

Source: U.S. Department of Education

What are the consequences of student loan defaulting?

admin — Wed, 22 Apr 2009 19:09:52 +0000

Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:

* The Department of Education can immediately demand repayment of the total loan amount due.
* The Department of Eduction will attempt to collect the debt and may charge collection costs.
* The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings and, making it difficult for borrowers to make purchases such as cars or homes.
* Borrowers with loans in default are ineligible for Title IV student aid.
* Borrowers with loans in default are ineligible for deferments
* The Internal Revenue Service can withhold borrowers’ Federal income tax refunds.
* Borrowers’ wages may be garnished.

It is important that borrowers with Direct Consolidation Loans stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans.

Source: U.S. Department of Education

Defaulted FFEL or Direct Loan Program loans

admin — Wed, 22 Apr 2009 19:06:45 +0000

Borrowers with defaulted FFEL or Direct Loan Program loans may be liable for collection costs incurred to collect the loans. If the holder of the defaulted loan, which may be either the U.S. Department of Education or a guaranty agency, retains a collection agency to collect defaulted loans, charges imposed by the collection agency may be added to the amount borrowers owe. This means that the amount of the Direct Consolidation Loan may include collection costs of up to 18.5% of the principal and interest outstanding on the defaulted loan.

For defaulted Perkins Loans and health professions loans, collection costs may equal as much as the amount owed at the time the defaulted loan is paid off through consolidation.

Source: Department of Education

If You are Facing Loan Default

admin — Wed, 22 Apr 2009 19:01:50 +0000

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a Federal Family Educational Loan (FFEL) program loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments or 330 days in the case of a loan repayable in less frequent installments. The change is effective for loans for which the first date of delinquency occurred on or after October 7, 1998. During the delinquency period, your loan holder must exercise “due diligence” in attempting to collect the loan; that is, your loan holder must make repeated efforts to locate and contact you about repayment. If your loan holder’s efforts are unsuccessful, steps will be taken to place the loan in default and to turn the loan over to the guaranty agency in your state. Your loan holder may “accelerate” a defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.

Once your loan is assigned to a guaranty agency or the U.S. Department of Education (Department) for collection, the following steps may be taken to recover the outstanding balance due:

The Department of the Treasury may offset your federal and/or state tax refunds and any other payments, as authorized by law, to repay your defaulted loan.
You may have to pay additional collection costs after your loan is assigned to a private collection agency for collection.
Also, you may be subject to Administrative Wage Garnishment, whereby the Department will require your employer to forward 15% of your disposable pay toward repayment of your loan.
Federal employees face the possibility of having 15% of their disposable pay offset by the Department toward repayment of their loan through the Federal Employee Salary Offset Program.
The Department may take legal action to force you to repay the loan.
Finally, credit bureaus may be notified, and your credit rating will suffer.

Once a loan is declared in default, you are no longer entitled to any deferments or forbearances. In addition, you may not receive any additional Title IV federal student aid if you are in default on any Title IV student loan until you have made payments of an approved amount for at least six consecutive months.

Source: U.S. Department of Education