Student loan debt could put you in a hole you might have some trouble digging your way out of. If payments fall behind for a period of time – usually about nine months – your loans could go into a default status. If you’re in this circumstance, you might be facing some serious consequences, and it could be a very scary time.
Any federal loan under the status of default will be transferred to the U.S. Department of Education’s Default Resolution Group. Some measures will be taken at this point to ensure some form of payment. If you have a defaulted loan, or a loan that is close to becoming defaulted, you could face administrative wage garnishment and/or a withholding of federal and state tax refunds. It is extremely important to get these loans out of default as quickly as possible. Some options may include loan repayment, loan rehabilitation, or loan consolidation.
If you’ve been following the articles throughout this website, you may have already read about Curtis. He was a graduate who found a well-paying job soon after college and was able to repay his student loans through the standard repayment program. However, many of us are not like Curtis, and we do not have the income to sustain normal monthly payments. If you’re like Curtis, you could repay the loan in full to come out of default. However, if you could do that now, chances are you wouldn’t have defaulted in the first place. That’s why there are repayment programs that are based on a borrower’s income. These people can pay lower monthly payments. Although, if you want to opt for one of these programs, keep in mind that you will be paying for a longer period of time than the standard ten years. Interest will continue to accrue during this time period, so you will end up paying more in the long run.
Another option for you could be loan rehabilitation. This is the road Susie took to get her loan out of default. Basically, a debtor and the U.S. Department of Education must agree on a reasonable and affordable repayment plan. A loan may be rehabilitated from default status only after the agreed-upon payments have been made on time. It is important to note, however, that outstanding collection costs can be added to the principal balance of the loan. This means you will be paying even more money. Once a loan has been rehabilitated, monthly payments may rise from what was being paid during the rehabilitation process.
Loan consolidation is the final option discussed here for defaulted student loans. Consolidation allows you to pay off one or more federal loans through a single loan payment with a fixed interest rate. After making three payments towards a defaulted student loan, they may be eligible for consolidation. However, collection and late fees may be added to the principal balance.
Consider your options carefully. Each has its own pros and cons. It is very possible to remove a loan from default status. At that point, wage garnishment and tax refund seizure will end. There are ways out, you just have to look for them.