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Delinquent Student Loans – Are you having trouble making your student loan payments? It is important that you understand the difference between delinquent and default loans. As you read further in this article, you will get to know more about delinquent student loans.
A loan becomes delinquent the first day after missing a payment. Even if you miss just one-month payment and then start making payments again, your loan account will remain delinquent until you repay the past outstanding amount or make other arrangements, such as deferment or forbearance, or changing repayment plans.
If you are above 90 days delinquent on your student loan payment, your loan servicer will report the delinquency to the three major national credit bureaus. This will lower your credit score and negatively affect your finances.
What is Loan Default?
If your loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default differs depending on the loan type you received.
For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you’re considered to be in default if you don’t make your planned student loan payments for a period of at least 270 days (about nine months).
For a loan made under the Federal Perkins Loan Program, the holder of the loan may declare the loan to be in default if you don’t make any payment on the scheduled date.
What Are The Consequences of Delinquency?
Federal student loans have a lot of flexibility and options if you are having trouble paying. But should you just ignore your debt and let your delinquency go to 270 days or more, the government has the resources and the authority to come after you for the money, and there is no time limit. This may include:
- Seizing your tax refunds
- Turning you down for new loans
- Garnishing your wages without even getting a court order
- Seizing part of your Social Security benefits
- Adding a big collection fee on top of it all
What are the Consequences of Default?
The consequences include the following:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called acceleration).
- You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
- You will lose eligibility for additional federal student aid.
- The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
- Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called Treasury offset).
- Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
- You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
- Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school’s decision, not the U.S. Department of Education’s or your loan holder’s, whether to release the transcript to you.
How Do You Avoid Student Loan Delinquency?
The following are ways to avoid student loan delinquency:
1. Forgiveness and Income-Driven Repayment Plans
You can apply to be on an income-driven repayment plan (IDR) that sets your monthly student loan payment at an amount that is affordable based on your income. Four plans are available and you can apply here.
If your loan is not eligible for an IDR plan such as Parent PLUS loans, you can become eligible through a federal Direct Consolidation Loan. After 20-25 years on an IDR plan, any unpaid amount will be forgiven.
Deferment is a suspension of federal student loan payments. You may qualify for a variety of reasons such as being in the military or in school.
All federal student loans offer deferments to qualifying students, but some private lenders do also. If you can defer payments, interest doesn’t accrue on the subsidized portion of your loans.
Forbearance is very similar to deferment but is often granted due to a hardship such as financial difficulties or medical expenses. It is available for up to 12 months, and you must pay interest. You can request another forbearance if you are still in difficulty after 12 months.
Federal student loans have criteria for qualifying for forbearance. Private venders may grant forbearance, but often they do not or as not as flexible.
How Can You Get Out of Default?
Getting out of default on private student loans is a much different process than for federal loans. Unlike federal government loans, private student lenders are not required by law to offer “get out of default” programs.
Some lenders may have these programs, so it’s a good idea to check with your lender. If they do offer this type of program, make sure to ask what the requirements are and whether the lender will clean up your credit report after you complete the program.
The main problem is that most private lenders charge off loans after 120 days of missed payments. The time period will differ depending on the lender. After the loan is charged off and in default, most private student lenders will not work with you to help you get out of default.
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