Understanding Student Loan Default
Default is the event that occurs 270 days after your last loan payment
was past due. When you reach this point, the debt that you owe will be
put into collections, and you will be contacted by collection agencies
for payment. There are ways of dealing with collection agencies, especially
if they become harassing in their collection tactics. Make sure you are
equipped with knowledge on how to deal with them or hire Lebedin Kofman
LLP to deal with them.
Before default, when you miss your first student loan payment, you acquire
the status of delinquency, and this signals to the lender that you may
be facing financial difficulties. After the payment is 90 days overdue,
then the status will be reported to the 3 major credit bureaus and there
will be a negative indication on your credit report. Unfortunately, having
a bad credit profile will make it harder for you to secure future loans.
What are the consequences of default?
Unfortunately, there are many bad consequences of default. If you have
federal student loans, you lose many perks and benefits associated with
them. Such benefits include eligibility for loan forgiveness, forbearance,
deferment of your loans, and the ability to switch to different payment
plans that meet your needs. As mentioned before, default triggers many
immediate consequences including a bad credit score and collection agencies
contacting you. A lowered credit score will be visible on your report
to lenders even if your default is resolved relatively quickly. The consequences
of a lower credit score can impact your future loans including mortgage
rates, interest rates, employment opportunities, and perhaps future educational
In addition to dealing with annoying and oftentimes intrusive collection
agencies, their fees called "collection fees" will be another
payment that you are responsible for in addition to your initial principal
and interest. This terrifying reality should be avoided at all costs,
as it is often difficult enough to pay student loan debt without additional
fees. Another downside is that your tax refund may be applied to your
student loan payment through the Federal Tax offset program. This will
be done automatically, and you will never see that extra cash..
Your wages may also be garnished, a devastating effect for anyone. The
government may begin to collect payment by automatically deducting 15%
of your paycheck. Being in default on private loans could open you up
to the possibility of lawsuits from the government or other lenders. Additionally,
you will face a different set of wage garnishment laws depending on which
state you reside in.
What steps can you take after defaulting?
If you have not defaulted, but are facing the possibility of default, either
talk to your lender immediately and negotiate a plan or solution that
best fits your needs or call Lebedin Kofman LLP so that we may discuss
what options you may have. As mentioned, federal student loan program
offers different payment plans, so use the tools available on the Department
of Education's website or talk to a representative to better understand
your options and pick the best payment plan for you. Lenders are less
reluctant to harshly punish you for delinquency or default if you talk
to them beforehand and try to come up with a solution. Talking to your
lender can also open up to new possibilities. They can answer questions
and see if you're eligible for other plans such as the Pay As you
Earn plan that will lower your monthly payment depending on how much you
make per month.
If you have already defaulted, remain persistent and take action as soon
as you can. Do not wait or ignore the situation. Talk to collectors, talk
to your lender, and start exploring your options. They could offer options
including a different repayment program, debt consolidation, and the federal
rehabilitation program. Be prepared to talk in depth about your financial
situation and current circumstance to get the most out of your conversations
and truly seek help. If you find yourself overwhelmed, call Lebedin Kofman
LLP so that we can help explain the options to manage your situation.