Escaping Loan Crisis
A loan is considered delinquent the day after you miss a loan payment. The loan will remain delinquent until you repay the past due amount, put the loan into deferment/forbearance, or change your repayment plan. For Direct Loans or FFEL loans, the loan is considered in default if you don't pay the full amount of your scheduled payments for at least 270 days. The consequences of default include:
- Lose of eligibility for additional federal student aid.
- Damage to your credit rating.
- Garnishment of wages and/or tax refunds.
A comprehensive list of the consequences of default can be found on the FSA website. For help with your defaulted loan, contact the holder of your defaulted loan by logging in to My Federal Student Aid. In some cases, that may be the Default Resolution Group (DRG) or the collection agency assigned by DRG to collect on your account.
When your loan goes into default, the entire balance of the loan becomes due. You will no longer have access to deferment or forbearance options, nor can you change your repayment plan. You can exercise your options for getting out of default, which are listed below. Failure to exercise one of these options may result in your loan being placed into collections. The collections process will result in additional fees added on to your loan that must be repaid. Even if you decide to rehabilitate the loan after it has gone to collections, your new loan balance will reflect the addition of the collection fees. Collection agencies contracted by the U.S. Department of Education will offer you the option of entering into a voluntary repayment agreement. If you do not enter that agreement or if you stop making payments under that agreement, the collection agency has the ability to garnish your wages and/or any tax refund you may receive. It is in your best interest to request loan rehabilitation and work with the loan holder to create a repayment plan option that works best with your current life circumstances. Keep in mind that you will only be able to exercise your option for loan rehabilitation once during the life of the loan.
When you loan is in default, you do have a couple of options available to you:
For help with your defaulted loan, contact the holder of your defaulted loan by logging in to My Federal Student Aid.
Declaring bankruptcy does not automatically cancel your federal student loan debt. In very rare cases, borrowers have been able to file a separate action in bankruptcy court stating that being required to repay the loans would create undue hardship on the borrower. If the court does not cancel your loan debt, you can go back to your loan servicer and discuss repayment options. Otherwise, the wage and tax refund garnishment will continue.
Private student loans are not a part of the federal student loan program and typically do not feature as many repayment plan options or borrower protections as federal student loans. The terms and conditions of repayment are established by the bank or credit union that holds the loan. When you default on your private student loan, the lender can refer the account to a debt collector and can include action against the co-signer or the loan borrower, depending on who the debt collector has a better chance of collecting the debt. If you feel that a debt collector is treating your case unfairly, you have the option to file a complaint with the CFPB.
If you attended a school that closed while you were attending or closed within 120 days after you withdrew, you may be eligible for a closed school discharge. You would not qualify for the loan discharge if you participated in a teach-out option through another college or transferred your credits to another school. If you do not qualify for a closed school discharge but feel that your college misled you or engaged in misconduct, you do have the option of filing a Borrower Defense to Repayment Claim.