Student Loan Problems

Unable to make regular payments?

When you do not make regular payments on a student loan, the loan is said to be "in default." Contact your lender! Try to work out payments. If you can't work out arrangements and you don't make payments, this is what MAY happen. If you are not making your payments because you are still in school or are unemployed, you may be eligible for a deferment. With a deferment, you are given permission not to make payments. Interest still accumulates, but you will not be penalized in other ways.

DEFAULT

If you have not made regular payments on your student loan and are not eligible for a deferment.

• The Department of Education and/or the companies that handle loans in default, will begin collection action.

• You will not be able to get a deferment.

• You won't be eligible for flexible repayment options.

• You won't be eligible for new federal student loans and grants.

• Your credit record will show that you have not made timely payments. This may prevent you from getting credit in the future or getting credit at a low interest rate.

How to get out of default.

• Call the agency handling your loan and ask for a form to complete or send a letter pleading your case. You must provide income and expense information.

• The agency will review your request and send you a notice of the amount you must pay. Do not agree to a payment amount you cannot afford.

• You must make 12 consecutive "reasonable and affordable" payments. The guarantee or collection agency decides what is reasonable and affordable.

• You may only enter into this arrangement once. If you miss a payment, the government will not grant you another chance to get out of default this way.

To consolidate your student loans

You may be able to get out of default through a debt consolidation loan. The Student Loan Marketing Association (Sallie Mae), has special requirements that may make it difficult to get a consolidation loan if the loan has already gone into default.

The federal government and some other lenders will consolidate defaulted loans, but you may have to shop around to find a lender who will make this kind of loan. In most cases, they will require that you first make 3 monthly payments on your defaulted loans. The amount of those payments will depend on what you negotiate with the old lender and new lender.

Your credit report will still show that your previous loans were in default, but have now been paid in full through a new loan.

If you don't make arrangements to pay your student loans ...

COLLECTION ACTION

If you make no effort to pay your student loans, you may expect aggressive action by the government to collect the money that is owed.

Collection fees can make paying the loan much more expensive. The guarantee agencies generally add a collection fee of 25% to the principal, interest, penalties and other collection fees you already owe.

Collection agencies charge the Department of Education a commission of about 28%. That commission is passed on to you, meaning you have to pay the loan amount and the commission.

LOSING YOUR INCOME TAX REFUND

The IRS can intercept your income tax refund until your defaulted student loans are paid in full. The IRS can only take tax refunds when the loan is held by a guarantee agency, the Department of Education or a collection agency working for those two.

GARNISHING YOUR WAGES

The Department of Education and guarantee agencies are authorized to garnish 10% of the wages of a student loan debtor who is in default. They do not have to sue you first.

OTHER ACTION

The agency holding your student loans may choose to sue you and obtain a judgment against you. If the agency obtains a judgment, it may be able to seize bank and other deposit accounts, valuable property or put a lien against your property.

STUDENT LOAN DEFAULT HOTLINE: 1-800-621-3115

Source: Attorneys Robin Leonard and Shae Irving, TAKE CONTROL OF YOUR STUDENT LOANS

The above information should be understood to be a general discussion of the subject matter and DOES NOT constitute a legal opinion about the situation. For further information please consult a qualified attorney.

Back to Basics Of