What You Should Know About Default Collections on Student Loans
Default rates for student loans have been on the rise in the United States over that past several years and has become a major economic problem for our country.
Here is what you should know regarding what takes place when a student loan enters into default with the Federal Government.
Consequences of Default
Compared to delinquency, loan default has many more consequences. Default occurs after a loan has gone unpaid for at least 270 consecutive days. Defaulted loans can cause the following:
Negatively Impacted Credit History
Having a default on your credit history will basically ensure that you won’t be able to obtain further credit. This will hurt when trying to buy a car, home or obtain a credit card.
Collection of Wages
Your income can be garnished through the loan collector once you have gone into default. This means that 15 percent of your discretionary income will be paid directly to the collection agency.
Ineligible for Deferment or Forbearance
Loan deferments and forbearances can help you buy some extra time while you try to obtain the money to pay your student loan. While in default, that won’t be a possibility.
Any loan that goes into default is automatically sent to a collections agency. These agencies are very adamant about getting the money back and will try to contact you almost daily.
Tax Return Withholding
While in default status, your tax returns will be completely withheld to pay towards any outstanding student loan debt currently in default. It is possible that you can pay off the entire default amount with this method, but it’s unlikely.
Collection fees, late fees and many other fees are likely to be tacked on by the collections agency as a result of a loan in default.
In some rarer cases, the loan collector can have a case taken to court. This is very uncommon, but it has happened.
Entire Balance Due
Once in default, the entirety of your balance is now due. There are no monthly payments that will be accepted unless it is from withholding or wage garnishment.
How to Get Out of Default
Once you go into default, you have a few options in which you can get out. Here are the ways in which you can achieve that.
Clearly, if you are able to pay the entire balance of your loan at one time, then that will remove your loan from default status. Not many will have this capability, so don’t expect it to be an option. However, wage garnishment and tax return withholding may end up repaying the loan as well.
The Education Department offers this option by setting up a mutual agreed payment schedule. There may be more fees added to the student loan, but this will remove it from default status. The payments are typically lower and your credit history is cleared from default. If you fail to make your payments through this program, however, you cannot do it again.
If you consolidate your defaulted loan with another loan, this will remove the defaulted status. It is possible to have a consolidation loan also go into default if you fail to make payments. This will acquire fees as well.
Do you still have questions?
Give us a call today at 1-800-488-1490 to find out more about your specific loan structure, the programs that may be available to you, and how to potentially reduce your monthly payments and possibly have your federal student loan debt forgiven!
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