Consequences of Default
You are responsible for repaying your student loans even if you do not graduate, have trouble finding a job after graduation, or if you are not satisfied with your education. If you do not make any payments on your student loans for over 270 days and do not make special arrangements with your lender to get a deferment or forbearance, your loans will go into default. Defaulting on your student loans has serious consequences, such as:
- Your loans may be turned over to a collection agency at which point, you are now responsible for the very high collection agency fees.
- Your wages may be garnished and you can be sued for the entire amount of your loan.
- Your federal and state income tax refunds may be intercepted or your Social Security benefit payments can be withheld.
- Your defaulted loans will appear on your credit record. A bad credit record can affect your ability to purchase a car, home and credits cards. It may also affect your ability to get hired at a job.
- You may lose eligibility to receive any more federal financial aid until you make proper arrangements.
Some of the things you should do to help prevent default include:
- Make sure you understand your options and responsibilities before borrowing.
- Keep careful records regarding your loan. Put copies of all your letters, canceled checks, promissory notes, notices of disbursement and other forms in a file folder.
- Make your payments on time.
- Notify your lender or servicer promptly of any changes that may affect the repayment of your loan. For example, your home address, enrollment changes and/or graduation.
- If you are having trouble making your payments, your lender may be able to suggest alternate repayment options.
- If you encounter extreme financial difficulties, consider applying for a deferment or forbearance on your loans.
The two options available for postponing repayment of your student loans are deferments and forbearances. Stay in contact with the lender, they will help you determine if you are eligible for a deferment or forbearance BEFORE you default.
The lender allows you to postpone repaying the principal of your loan for a specific period of time, making your debt more affordable. Contact your lender or SALT for more specific information regarding this process.
During forbearance, the lender allows you to postpone or reduce your payments, but the interest charges continue to accrue. Contact your lender or SALT for more specific information regarding this process.
Getting Out of Default
To get out of default, you need to make arrangements with your loan servicer to repay the loan. Once you have made six regular payments, you will be eligible for additional Title IV aid. After you have made twelve regular payments and applied for and received "rehabilitation", you will no longer be considered in default. At this time, record of the default will be removed from the reports to credit reporting bureaus.
For information about your options, contact the servicer of the loan and/or the original lender. If you do not know who currently is servicing your loan, create an account with the National Student Loan Data System (NSLDS)
If, at any time, you find you are having financial difficulties, do not ignore your student loans! Call your student loan servicer or PCC for help!
The U.S. Department of Education's Federal Student Aid (FSA) Ombudsman Group is also a neutral, informal resource to help resolve disputes and solve other problems with federal student loans. The Ombudsman helps resolve problems related to student loans when other approaches have failed. Borrowers must first make every effort to resolve student loan problems before contacting the Ombudsman. Borrowers who have completed steps to resolving their loan dispute and are still not satisfied may contact the Ombudsman by either completing an online form or by calling 1-877-557-2575.