Before a student loan is disbursed, a borrower must sign a promissory note. A promissory note is a legal and binding agreement between the lender and the borrower. The agreement states that there is a clear repayment term for the money loaned to the borrower. It also includes the payment dates, the interest rates, and remedies if the loans payments aren’t faithful.
Should a borrower stop making payments according to the agreement, the lender will place default states on the loans after 270 days within a late payment For some loans; it may be less. This default status will show on your credit report, and it will make it extremely difficult to obtain loans in the future.
Delinquency occurs when you miss a payment or are late on a payment, even by one day. That means that the borrowers is late but has not fallen into default on their student loans. In most cases, there are consequences for being delinquent. It can include fees, or it can be placed on your record with collection agencies if your delinquency is at least 90 days.
Defaulting on a loan is a serious issue. A default negatively impacts your credit score which will make planning a financial decision harder. In addition to impacting your credit score, a default will be a record on your credit report. If you paid off an account with a default associated with it, despite it being paid off, it doesn’t remove the default record. The default will stay on your record for years.
When a loan enters default, it may go through a collection agency. When this happens, debt collectors will try to collect payment. Sometimes borrowers experience harassing phone calls agencies. In addition, collection agencies are allowed to charge fees as a commission for their services which can increase the debt amount and cause confusion among borrowers who may not understand the details of their growing debt.
If you have defaulted on your loans, you lose all eligibility for more or new federal aid. That can be a serious problem for students who are attempting to go back to school to finish their program. Borrowers also lose deferment and forbearance. To lose this benefit can present a significant problem for borrowers if they face severe financial difficulty. Deferments and forbearance are designed to help give borrowers a chance to reestablish themselves financially. Too often, borrowers fail to use these benefits and only realize it when it’s too late.
A frustrating issue that can arise during default is that the DOE can place a wage garnishment order on you until the loans are paid off. The DOE may also contact the IRS and offset any of your tax refunds and apply the amount to your loan balance.
If you want to learn more or are currently in default, contact us at Student Debt Doctor to learn how to get back on track financially and get a hold of your student debt.