The average monthly loan payment is $390, which can be difficult for people who are struggling to make ends meet. But the inability to keep up with your student loan payments can, over time, eventually lead you into default. This is a major consequence.
For federal loans, the process of going into default starts as soon as you miss a payment. These default loans can have a negative effect on your finances and your life in general. Here is all you need to know about defaulting on your student loan:
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Table of Contents
What Is a Student Loan Default?
Student loan default is a term used to refer to the inability to meet up with the payments on your loans, as your loan contract states. These defaults are of different types in relation to the kind of loan.Â
- Federal student loans: Federal student loans go into default when loan payments are past due for either 9 months or 270 days. Some federal loan options can go into default immediately if you miss a scheduled payment by its due date.
- Private student loans: Private student loans go into default after you miss payments for three months or 90 days in total. Therefore, you should check your loan’s promissory note for specifics, since some private loans default after one missed payment.
What Happens If I Default on Federal Student Loans?
There are several consequences that come when you allow your federal student loans to go into default. This is when you fail to make your payments for at least 270 days. These consequences are:
- Acceleration: The whole balance that is still unpaid from your student loan plus all the interest that you owe is due immediately. This is the acceleration process.
- Federal benefits: When you default on your federal loans, you then lose access to federal protection benefits such as deferment and forbearance.
- Flexibility: When you default on your federal student loan, you, therefore, give up the chance to select the payment plan that suits you and also lose the ability to switch student loan repayment plans. Additionally, you also lose access to income-driven repayment plans.
- Federal student aid: When you default on your federal student loan, you are no longer eligible for federal student aid.
- Credit score: Before your federal loans are declared default, you will be reported to the three credit bureaus 90 days after you’re late. Furthermore, this will damage your credit score and make it difficult to get a car loan, credit card, or mortgage.
- Treasury offset: You will have your tax refunds and federal benefit payments withheld or garnished to repay your overdue student loan balances through the Treasury offset process.
- Wage garnishment: Wage garnishment is a process that allows the federal government to garnish your wages in order to cover your student loan payments.
- Legal problems: You may encounter legal problems as your loan servicer may sue you in court. In addition to your loan debt, this can lead to paying court fees and other legal expenses.
- School issues: The university or college can withhold your transcript and other necessary documents, which can make it hard for you to get admission to other schools in the future.
- Real estate issues: You may also not be able to purchase or sell real estate assets.
Finally, we recommend that you reach out to your student loan servicer if you’re having trouble making payments.
What Happens If I Default on Private Student Loans?
People who default on their private student loans have different consequences than federal loan defaulters. This is why you must follow the rules and regulations of private lenders. Note that the consequences of defaulting vary from one lender to another.
Furthermore, your private student loans will default if you miss a payment for 90 days or longer. You can also default on your private student loans when you declare bankruptcy, default on another loan, or die.Â
Consequently, you will have your default reported to the credit bureaus when you miss payments for 90 days or more. Additionally, your debt will be sent to a collection agency if you continue to miss payments.
Like federal loans, your lender may sue you in court, and this could mean additional costs like court fees in addition to your accrued interest.
Therefore, you should reach out to your private lender when you are experiencing difficulty making payments on your private student loans. This is because they can offer a temporary forbearance plan or an unemployment protection program to help you.
What Do I Do When I Am Defaulting on My Student Loans?
You should discuss this with your loan provider to come up with programs that can help you.
For federal loans, you can:
- Switch to an income-driven repayment plan
- Change your monthly payment due date
- Opt for deferment or forbearance.
For private student loans, you may consider:
- Refinancing your private student loan can allow you to streamline multiple payments into one monthly bill.
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It is important that you make payments for your federal and private student loans on time so you can avoid going into default. However, in cases where you are finding it difficult to repay your loans, you must reach out to your loan providers to come up with an alternative.
At EdXtra, we understand that to build an inclusive global economy, education should be based on the potential for value creation.
Through our global education lending partners, we now help and support African students to fund their graduate education in the US, Canada, or the UK.
Are you an African graduate student with future career potential? Edxtra Student Loan Support Service will provide you with the needed expert support and guidance to get student loans from our global lending partners to study at leading global universities.
Read Also:
3 Things You Must Know Before You Take A Student Loan
The Complete Guide to Student Loans for International Students in the US
