Student Loan Default
Defaulting on a student loan happens when you miss a scheduled payment for a period of at least 270 days. It is completely understandable that this happens as not everyone can make a payment according to the schedule set by their plan.
Shifting personal finances, the death of a loved one, health issues, and losing a job are some of the many things that impact income. These things can happen to anyone, so it is important that you become educated about the topic to know the potential dangers of a default as well as how to fix it.
It is especially necessary because defaults show up on your credit report and may jeopardize any future attempts at taking out another loan.
How Can I Fix My Student Loan Default?
There is always the option to correct your default by paying off the entire balance. You can find someone to help sign another private loan with you to get the money needed. Preferably when doing this, you want to get somebody with a high credit score and who is trustworthy, maybe a friend or family member.
There are several refinancing companies that give students private loans to help them make their payments. Obviously, this is not viable for many people but there are still other ways to go about it.
William D. Ford Direct Loan Program
You can always convert your loan into the William D. Ford Direct Loan program. Your student loan will be paid off and put into a new loan that will be overseen by another institution. This brand-new loan would have an interest rate based off of your previous one.
The good thing about taking this route is that you can choose from a number of different repayment plans and pick whichever one best suit your needs. There are even some that offer payments of zero dollars monthly, which you can have set in place for years until there is an income to use to make those payments.
With student loan defaults, you want to get back into good standing with your credit as soon as possible. There are rehabilitation programs available to help you get back on track.
Some programs are 9 months long and involve a loan borrower making arrangements concerning payment with a lender. After the 9 monthly payments have been made, the default status will be taken off your record.
But keep in mind that if you miss one payment, the rehab program must be restarted.
Why Should I Fix My Student Loan Default?
Once you have paid off your loan, the default status will no longer be there. But your credit report will still show lenders your history of default for years to come.
However, that is not the sole problem with defaulting.
When you default on a loan, it gets sent to a collections agency. You will begin to start getting bothersome phone calls from debt collectors and collection fees will be added to your balance.
Now not only do you have to pay off your loans, which you were struggling with in the first place, but you will also have to come up with additional money to cover these new fees.
Default loans also decrease your chance to qualify for forbearances and deferments, which are there to provide struggling people some relief when they are trying to pay their loans. They can give you some wiggle room, but that option goes away once the collections agency gets involved.
You also lose your ability to get new federal aid once a loan has been defaulted. Imagine being enrolled in university, defaulting on a loan that you took out to pay for your education, and now being barred from getting the last bit of money needed to graduate. Now you cannot obtain your degree, get a higher paying job, and you’re stuck with an undesired job where your salary goes towards paying that loan and any other fees that were added after defaulting.
Clearly there should be no shame in defaulting on a student loan, but you want to avoid having the Department of Education and Internal Revenue Service involved in your personal matters. You must be proactive and act immediately upon defaulting on a loan. It will save you both time and money in the long run.
Contact our experts for more information on student loan default, and learn more about your options for a better financial future.
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