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How Do You Default on a Student Loan?

Defaulting on a student loan can have some serious consequences.  It’s best to avoid this situation, no matter the circumstance.  Besides ruining credit, defaulted loans could mean the borrower facing wage garnishment.  The IRS could even withhold federal and/or state income tax refunds to help pay off the loan.  Knowing how a loan defaults could prevent it from happening in the future.

Failure to make on-time payments towards student loans could throw those loans into default.  The promissory note, the binding legal contract signed upon initial borrowing of student loans, lists the terms for repayment.  Usually, federal Stafford loans have a six month grace period after school ends, allowing the graduate to find a job.  Payments will be due as soon as the grace period ends, and any late or missed payments could lead to a defaulted loan.  It’s best to make the monthly payments on time, every time.

Unfortunately, a loan will become delinquent the first day after missing a payment.  The loan will stay in delinquency until payments have been brought up to date.  Payments over 90 days late will be reported to the national credit bureaus, which could potentially destroy a credit rating.  It is important to begin paying the loans as soon as the first bill is received.  Student loans should never be ignored.  They are not going to simply go away, and things will only get worse in the long run.

Typically, it takes 270 days of late or missed payments for federal student loans to go into default.  This adds up to nine months.  There are benefits such as deferment or forbearance for incriminating circumstances in which a person cannot pay off their loans at a given time.  Take advantage of these benefits if a situation arises.  Nine months may seem like a long time, but those months will go by quickly.  Not only that, but interest will continue to accrue on the principal balance.  The longer it takes to repay the loans, the more a person will be paying in the long-term.

There are many options to remove a loan from default status, and even more to avoid the default in the first place.  Check out some other articles on this website concerning avoiding default, getting out of default, or reducing student loan debt for further information.  There are plenty of options for the struggling graduate out there.  Consult the loan service for better repayment options, consolidation or refinance offers, etc, to make repayment easier and avoid a defaulted student loan.


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