Defaulting on a student loan is when you stop making your loan payments. Sure, there are times late payments are made, but not making any payments places you in default status. Unfortunately, there are serious consequences when defaulting on a student loan.
The school you attended guaranteed the loan. Whether you have a private loan or a federal loan, the lenders will take action against you to recover the money you owe.
Defaulting on student loans is a nightmare; it affects your credit, your wages can be garnished, and your bank accounts levied.
When you are placed in default for a Federal Direct Loan or Federal Family Education Loan, those programs are owned by the US Department of Education. They have a resolution group dedicated to recovering defaulted funds.
If you know that you’re in default, there are a few things you should immediately look into:
Find out if you have private loans or federal loans
Contact your lender and explain why you defaulted
Ask how you can resolve this issue
Make sure that if you set up a new payment plan that you can stick to it.
Defaulting on student loans, though serious, doesn’t mean you can’t move forward. There are options available to you. Look into:
How do I know if I’ve defaulted on my Student Loans?
Every institution is different. However, you are considered to be in default if you haven’t made payments in 3-6 months. You should receive a series of notices via phone, post, and, or email from your lender like:
Your student loan payment is late
If you don’t make your payment within “X” time-frame, this month’s payment will cost “X” amount in late fees on top of your payment
You are two months behind on your loan payment
If we do not hear from you and no payment is made, you are at risk for DEFAULTING ON YOUR STUDENT LOANS by “X” date.
You have DEFAULTED ON YOUR STUDENT LOANS; this will appear on your credit and we will do “X” to ensure we recover our monies
A great way to avoid this issue is to contact your student loan provider and let them know your situation and find out how they can work with you so you avoid being in default.
If you can’t make payments because you’re leaving for active duty in the military, going back to school, or your financial situation has changed, request a loan deferment or forbearance.
If you are headed to graduate school, contact your loan provider and let them know. Find out if you’re eligible for a grace period.
Consequences of defaulted loans:
Collections, plus interest
Taken to court
Ineligibility for additional Federal, and, or private student loans
You can be reported to the credit bureau which affects your credit
Bankruptcy doesn’t always include student loan debt. We can’t stress this enough, contact your loan provider if you anticipate issues paying your loans.