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How to Manage Your Student Loans

Consequences of Default and Default Prevention

What Is Default?

If you miss your regular student loan payments and do not contact your lender or servicer to make alternative arrangements, your loans will be considered delinquent.

If you have a delinquent loan, at first you will receive letters and phone calls offering help and information. However, this contact will become demanding and get to be a hassle if you continue to miss payments or ignore the contacts. The callers are not being mean. They are required by federal regulations to contact you by letter and phone.

You cannot afford to miss any payments without talking to your lender or servicer. If you continue in a delinquent status without paying for 270 days (for monthly payments) or 330 days (for less frequent payments) and without resolving the issue with your lender or servicer, the guarantor of your loan will conclude that you no longer intend to repay the loan and will place it in a default status.

What Happens if I Default?

The consequences of defaulting on your student loan can be severe. Here are some of the things that could happen:

  • You can be sued for the amount you owe, and you will have to pay court costs and attorney fees.
  • Your credit rating will be damaged, which means in the future you may not be able to get a credit card or borrow money to buy a car or a home.
  • Any federal or state payments due to you, including income tax refunds and lottery winnings, could be automatically directed to pay your loan debt.
  • Your wages at your job may be garnished. That means part of your paycheck will automatically go to your student loan payments.
  • Your account may be referred to a collection agency, and you will be responsible for paying collection charges.
  • You cannot receive further federal financial aid until your default situation is resolved.
  • You could be denied assistance from federal benefit programs.
  • You will be ineligible for deferments, forbearances and repayment plan options.
  • You may be denied certain professional, occupational, business, industry, recreational, and/or motor vehicle licenses. If you already have a professional license, it could be suspended.
  • You could receive demands for immediate payment of the entire balance of your loan, plus any unpaid interest.

How Can I Avoid Default?

Communicate with your lender or loan holder. It's important that you admit when you are in trouble or do not understand something about repaying your student loans. When it looks like you might not be able to make a student loan payment, call your lender or holder immediately to discuss available options. Those options may include:

  • Changing your repayment to better suit your situation
  • Requesting a deferment or forbearance to temporarily postpone payments
  • Requesting a loan consolidation to lower your monthly payments
  • Seeking advice from a Counseling Service

Here are some other tips to help keep you out of default status:

  • Make your loan payments on time.
  • Set up your loan for electronic withdrawals from your bank account.
  • Take advantage of any repayment benefits offered by your lender or servicer.
  • Notify the holder or servicer immediately if you change your address, name or any contact information.
  • Keep copies of all records related to your student loans.

Defaulting is bad for you, your lender, your guarantor, your college or university and taxpayers. There are many resources available to help you. All you have to do is ASK!