Your Options for Student Loan Default

A student loan default occurs when student borrowers discover that the financial obligations they have taken on are difficult to meet in light of other expenses and increasing family obligations. Also, in certain situations, such as illness or loss of a job; a student loan borrower may feel that they have no other choice but to default on their student loans when income is limited. 

Fortunately, there are several options that can assist individuals with student loan default so that their credit is impacted as little as possible.

The first fact regarding defaulted loans that student loan borrowers should understand is when a late student loan payment becomes a defaulted student loan. According to the Higher Education Act, default occurs on a loan after 270 days in the case of a loan that is repayable in monthly installments or 330 days in the case of a loan that is repayable in less frequent installments.

The first action that a consumer who believes that they may be facing a student loan default is to ascertain whether the loan is truly in default or not. If the loan is not in default status yet, the borrower may be able to defer the loan or obtain a forbearance on the loan until they are able to resolve whatever situation is currently preventing them from making loan payments.

Individuals who are experiencing an economic hardship or unemployment may be able to obtain a forbearance in order to postpone their student loan payments. Student Loan Deferments are also available for temporary disabilities while cancellations may be possible for permanent disability.  

If the loan has already gone into default status, you will be unable to take advantage of any deferment or forbearance options and will be responsible for paying back the loan; however there are several options that can still assist students experiencing financial difficulties in meeting their financial obligations and restoring their credit. These options include:

• Federal Student Loan Consolidation programs
• Loan rehabilitation programs
• Monthly repayment options

For more information about a student loan default, please visit www.ed.gov.