Student Loan Blues

Defaulted Student Loans

Once you have left school and your federal student loans are in repayment it is important to make your payments on time. Some students and parents get behind on their Stafford loan, PLUS loan or Graduate PLUS loan payments, feel overwhelmed, and before you know it you haven’t made a payment in 270 days and your loans have gone into default. Your lender must make an aggressive effort to collect but if that fails your loan is turned over to the guarantor. Now it starts getting expensive.

The guarantor has several options at their disposal for collecting your loan payments

• US treasury offset – your federal and state income tax refunds may be garnished.

• Turn the loan over top a professional collection agency – fees and penalties may be up to 25% of the total principal and interest due.

• Wage garnishment – your paycheck may be garnished for up to 15% of your disposable income.

• Legal action – you can be sued for the balance of the loan plus court costs and lawyers fees.

• Credit agencies notified – a defaulted loan stays on your credit report for a minimum of 7 years.

Other penalties when your Stafford, PLUS or Graduate PLUS loans enter default:

• You lose any deferral and forbearance rights

• You cannot receive any further federal aid

• Generally your loan is due in full upon defaulting

Even if you pay your federal loan off it will still be noted as defaulted, paid in full on your credit report and counted as a black mark.

Defaulting on your federal loan must be avoided if at all possible. If you are having trouble making your payments contact your lender, they may be able to help you work out a payment plan you can afford. Consolidation may be your best option in the long run, it lengthens the term of your loan which lowers the payments and has several repayment plans to fit anyone’s budget. Contact Federal Education Services about a Stafford, PLUS or Graduate PLUS loan consolidation before you slip into the default abyss.