Defaulted Loans

What is Student Loan Default?

Student-Defaulted-Loan-300x274Before 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.

What is Delinquency?

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.

What are the dangers of falling into student loan default?

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.

Debt collection

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.

Default removes loan benefits

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.

Wage Garnishment and Tax Offset

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.

Learn More with Student Debt Doctor

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.

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Disclaimer: This site does not negotiate, adjust or settle debts. All federal student borrowers are able and encouraged to apply for any federal repayment or forgiveness programs through the US Department of Education for free without paying fees to any entity. Nothing on this site constitutes official qualification or guarantee of result. Student Debt Doctor offers fee-based services to assist with application preparation for federal student loan and other programs.
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