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Student Loan Default

When defaulting is your only option

As you may or may not know, your student loan isn't contingent upon you graduating from school -- you're responsible for your student loans whether you graduate from school or not. After going nine months without paying payments on your loan, or making deferment or forbearance arrangements, your student loan will go into default.

What's Student Loan Default?
Default is a way of saying you've failed to fulfill your obligation. When referring to a student loan, it means you haven't made payments or payment arrangements on your loan.

The Consequences
Because of the laws surrounding student loans, it's almost impossible to get away from student loans. Here are some facts:

  • The chances at getting your student loan discharged in bankruptcy are slim to none. You have to be "totally, permanently disabled", to even have a chance at removing your liability for the loan.

  • There's no statute of limitations on collection of student loans. That means the lenders and their collectors can come after you for the rest of your life or until you repay the loan, whichever happens first.

  • Student loan default stays on your credit report for seven years, making it hard to get approved for credit cards, mortgages, auto loans, and even employment.

  • You won't be able to get federal financial aid until you totally repay loan or make arrangements and six consecutive timely payments.

  • If you have a professional license, you may not be able to renew it until you've rectified the situation.

Your lender may use a collection agency or attorney to collect payment on the loan. In that case, you're subject to be responsible for the cost of the collector or the attorney, increasing the total amount you owe. You can be sued and have up to 15% of your take-home wages garnished.

Options After Default
Once you've defaulted on your loan, you can certainly continue to attempt to ignore. It will make life difficult to for you, especially while it appears on your credit report.

Or, you can call your lender and attempt to work out a plan. You'll be surprised to find that many lenders are willing to work with you. Find out what it will take to get caught up and your payment options once you're back on track. After you've made 9 to 10 consecutive, timely payments (not wage garnishments), your loan will be out of default status and the status on your credit report will be removed.

If your loan has recently defaulted and the lender has not filed the default claim, you may be able to stop them from doing so by bringing your delinquency to under 270 days. Consolidating your loans during this period of time is also an option.