Student loans are some of the largest held debt in the United States. As tuition and other school costs continue their upward trend, millions of Americans continue to accrue thousands in high-risk federal loans that cannot be forgiven in the face of declaring bankruptcy. The best cure is always more costly than an act of prevention. If you take your loans seriously and plan ahead, loan delinquency and default should never be a problem.
People, however, aren’t perfect. The costs of a mistake are very serious. Most student loans become delinquent within a single day of late payment, and will remain as such until the missed payments are repaid in full. This includes any additional fees. Late payments negatively affect your credit score from the three major credit bureaus. This reduces your chances of being approved for or getting a good deal on a mortgage, car loan, credit cards or other useful debt. If you are having trouble making payments, contact your loan servicer immediately.
After 270 days without making payment, most student loans default. Default is the point where the loan lender gains legal options to recover whatever debt you are not paying back. Besides a very serious impact on your credit score and ability to secure a mortgage or rental agreement, the ability of federal creditors to recover their losses is great.
So What Happens?
The outcomes can be overwhelming. Your debt can be accelerated, meaning all of your loan becomes immediately due for payment. You become ineligible for federal grants and aid, which may mean an end to your short term educational goals. Your tax returns may be kept by the federal government. Portions of your income may be taken directly as garnishment, and you may lose control of your checking and savings accounts. Legal action from the government or other lenders is a possibility, and being sued will inevitably bring an incredible cost in itself.
There are limited ways out, but chances are you will always be responsible for your debt. Rehabilitation and consolidation are two options in the face of default to renegotiate your payment plans and possible undue whatever pressures default have put you under. Rehabilitation keeps the same loans as before, and keeps you in default for almost a year, but if regular payments are made for that time the default will be removed from your record. This is a long, difficult process with long-term benefits if you hope to increase your credit score.
Consolidation will immediately end your default status, but the record remains in your file. A consolidation involves getting a new loan that includes the previous debt owed with a renegotiated payment plan.
Default is a very difficult financial and legal situation to escape. For college graduates who need help in the Inland Northwest, visit us at Post Falls Law to see what your options are moving forward.
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