Student loans default
For fulfilling various types of expenses related to education, students take different types of student loans. These include loans provided by the government like federal student loans and loans provided by private institutions. All student loans are required to be paid back along with interest amount. In many cases, students are not able to repay the sum borrowed as student loan and it constitutes student loan default. In simple language, non-repayment of amount obtained as student loan is called as student loans default.
However, there are many related aspects that must be understood by a person regarding this, as all non-repayment of student loans do not constitute student loans default. In technical language, if a student is not able to make payment of student loan installment comprising principal and/or interest for 270 days and does not make any special arrangements with the lender for getting deferment or forbearance, it is said that student loans default has been committed. Thus, if any student has not paid installment for 150 days, it does not mean that student loans default has taken place. Another aspect that should be understood here is that generally, student loans are not dischargeable through bankruptcy. Let us now discuss about the possible consequences of student loans default and how this default can be prevented.
Consequences and prevention
Consequences of student loans default are serious. There are many types of consequences that can follow student loans default. First of all, outstanding loans of student can be handed over to a collection agency and student shall be liable for all the costs incurred with respect to collection and court fee, attorney fee etc. A student can also be sued for the entire loan amount. Similarly, wages of student can be garnished after student loans default has been committed. However, as per the federal law limits, student wages can be garnished up to 15% of take home pay. Other consequence is that state and federal income tax refunds of student may be intercepted. Also, federal government can withhold part of his social security payments. One important consequence of student loans default is that this behavior is recorded on the credit record of a student, which makes it very difficult for a student to get mortgage loan, auto loan etc in future. Even he may face great difficulties in getting credit record. Apart from above, bad credit report may also affect his job getting chances. Another consequence of student loans default is that student is not able to get any federal financial aid until he pays the loan amount in full or make some other arrangements. Student loans default also renders him ineligible for federal benefit programs. He also becomes ineligible for deferments. Similarly, subsidized interest rate is denied to him. He is also not allowed to get his professional license renewed.
Looking at above serious consequences of student loans default, it can be said that prevention is very much necessary. There are some tips that help a student in preventing this default. First of all, a student should borrow as little money as possible. Large borrowings increase the default rate. A student must understand all of his responsibilities and options before getting the loan amount. A student should prepare a check list of all the loans taken by him and due dates of installment of all these loans should be noted separately. All efforts should be made for making payments in time. If there has been any change in address or name due to marriage etc, lender must be informed about the same. Similarly, leaves of absence, other school transfer etc should be brought into the knowledge of lender. If any student is facing financial difficulties of temporary nature, it is better that he applies for deferment or forbearance. This would help him in preventing student loans default. It must be noted here that no deferments or forbearances are allowed after student loans default has been committed. All requests for deferment or forbearance should be sent by mail and their return receipts should be kept as proof. Until a lender approves deferment etc, student should keep on making payments. In come making payment is getting difficult due to permanent income deficit, alternative payment options like graduated payments, extended payments etc should be sought from the lender. Lenders also normally agree to income contingent repayment plans, income based repayment plans etc. If a student gets the loan repayment term extended, he lowers his monthly payment amount but increases his overall interest amount. Other measure that helps a person in preventing student loans default is going for student consolidation loan. This helps student in consolidating all existing loans into one loan.
It is advised here that if a student has taken private education loans as well as federal education loans and he can afford to repay only one loan, he must try not to default on federal student loans. This is because federal student loans have flexible options regarding payment. However, penalties applied in account are harsh.
Other aspects
Deferment and forbearance are two options available to a student for postponing repayment. Generally, deferment are generally granted to those students who have been enrolled in graduate and undergraduate school, who are unemployed and are facing economic hardships and who are disabled and participating in a rehabilitation training programs.
After student loans default has been committed, a student should talk to his lender for getting making necessary arrangements. If any student is able to make 6 full voluntary in time payments, he becomes eligible for the additional Title IV aid. A student can also contact the Department of Education Ombudsman for getting support regarding defaulted student loan. He can log on to fsahelp.ed.gov or can call at 877-557-2575. However, before contacting Ombudsman, a student must take steps for resolving his problem on his own.
Many students look at bankruptcy filing after default has been committed. However, it is not the right choice. Unless there is a severe and proven hardship, student loans cannot be discharged through bankruptcy.
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