Things to Know About Student Loan Default
Student loan default, in simplest word, is the failure to pay a loan. You have many ways to postpone your student’s loan payment such as deferment, forbearance and promissory note.
The deferment can be your option if you are experimenting financial difficulties and you cannot pay right after your graduation and the grace period. The forbearance is your next option if deferment cannot be applied to your case.
You can also write a promissory note, which terms should be approved by your lender. Failing to pay and follow the terms that you will indicate in the promissory note will then result to student loan default.
Student Loan Default Period
You will be in a federal student loan default after 270 days of the payment due date. You will be in a much shorter deadline when it comes to private student loan default.
Student Loan Default Consequences
Default has many consequences. First is the likelihood of forcing the lender to take legal actions. The lender can collect taxes and pass your loan to a collector. Second, the student loan default can damage your credit score. A default is most likely reported to credit bureaus.
The bad credit score can be visible in your record for seven years and up regardless if you will pay it or not. This leads to another problem. With bad credit score, you will have difficulties in getting future loans approved.
Fourth, having a student loan default may also pull your co-signer if you have any. Most lenders will hold co-signers responsible for defaults, delinquencies and other payment problems.
There is an additional problem if you are on a federal student loan default. It can ruin your chances to get federal financial aid in the future. It is not good if you are planning to take law, healthcare, master’s degree and other graduate courses in the future.
You may also not be able to get a tax refund, which will then go to your defaulted loan.
Default: the Student Loan Documentary
Default: The Student Loan Documentary is a 27 min. documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system.
The documentary is now available for advanced screenings.
Student loan default rates are on the rise, according to a study released by the U.S. Department of Education. The default rate for-profit schools rose to 15 percent for the 2009 fiscal year from 11.6 percent during the 2008 fiscal year, while the default rate for public institutions rose from 6 percent to 7.2 percent, according to the study.
The study also reported a higher rate of students borrowing loans and an increase in the amount of students who could not pay the money back by the allotted time period. Historically, students and families have been forced to take out more in student loans as tuition and fees rise and as federal and state aid drops or stays at the same rate, said Becky Wilson, managing director of student financial aid.
Student Loan Default - Avoid Default
There are many ways to avoid default. First, you can opt to consolidate your student loans. Keep in mind that the federal student loans and private student loans should be consolidated individually to avoid losing the benefits of federal student loans.
The consolidation can be your way to get flexible payment terms and lower interest rate. However, you should be ready to pay for a longer time. A consolidated loan can be normally paid for 10 to 30 years.
Second, refinancing is another form of student loan default help. Refinancing Student Loans is much like consolidation in the sense that it is possible to enjoy lower interest rate. With refinancing, you will look for a lender who will be willing to pay for all your student loans. Unlike consolidation, refinancing can be done several times.
Third, lenders give a grace period. You can use this for consolidation or refinancing. You can also use it to look for a job so you will have a monthly source of income. If the 18-day grace period is not enough. You can use deferment or forbearance. It postpones the repayment period but continues the accumulation of interests.
If unpaid until the end of deferment of forbearance period, the interest of the student loan default will be lumped with the principal loan amount.
