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Default on a Student Loan

written by: Terry Caron•edited by: Donna Cosmato•updated: 9/16/2010

Defaulting on a student loan comes with serious consequences that should be considered. There are a number of ways to work with student loans from repayment plans to forbearance or deferment. We are going to define what a default on a student loan is and what to do if you are currently in default.

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    It is the students' responsibility to pay back their student loans, even if they did not graduate, did not like their school, or they are having trouble finding a job. Even bankruptcy will not release one from the financial responsibility of repaying student loans. It is very important for perspective and current students understand this.

    It is important to note that there is a significant difference between delinquency and default. You may receive notice that your loan is delinquent. This means that it is past a 30 day due date; you may receive penalties and have to pay additional interest, but this is different than a default. If you do not make payments on your student loans for 270-360 days and have not contacted your lender in an attempt to work with them for a deferment or reduced payment plan then your student loans will be in default.

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    Consequences of Default

    Here is a list of some of the consequences of student loans being in default.

      1. The federal government may send your loans to collections, and you may be responsible for any incurred costs of that collection.

      2. Your wages can be garnished, in amounts up to 15 percent of your take home wages.

      3. A portion of any social security benefits may be withheld until the balance of the loan is paid.

      4. Your tax returns may be intercepted.

      5. You will not be able to obtain any additional federal financial aid until the balance of your current loans is paid, or you make arrangements to pay the loans.

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        What to Do If You Are in Default.

        If you find yourself in the unfortunate situation of being in default with student loans, there is still hope. Here are some things you can do to get out of a default situation.

        1. Contact your lender or service and make arrangements to pay back the loans. (Once you have made 6 consecutive on time payments you are again eligible for title IV aid.)
        2. If the default period is within 90 days and the lender has not reported the default status it may be possible to consolidate the student loans. This is considered a new loan, and the slate is wiped clean.
        3. Contact the service to find out other options for repayment in order to get out from the default situation.
        4. Check the Federal Student Aid website or Finaid for additional options. The Finaid website has a number of links to resources and organizations like the Student Loan Borrowers Assistance Organization that can provide information on your options and rights as a borrower.
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        Do not let your student loans go unnoticed. There are a number of ways to reduce your student loan payment or push out the payment date. You can go to the Federal Student Aid website to learn more about default student loans, payment options and much more. There are options worth checking before defaulting.