How to Get Out of Default on Your Student Loans
One place you never ever want to be when it comes to your loans is in default. Not only is default bad for your credit, but it is also difficult to get out of once you get in it. Even so, everyone makes mistakes with their money at some point, so no error is ever permanent. In fact, you can get out of default in under a year if you really put your mind to it.
What Does It Mean To Have A Loan In Default?
To have a loan in default means you have not made a payment on the loan in 270 days. At this time, your lender will file your loan as being in default and a collection agency very well may take over the loan. This can cause your wages to be garnished and your credit score will drop dramatically. Luckily, there are ways to get rid of the default.
How Can I Get Out of Default?
Getting out of default can be relatively easy, but only if you act quickly. You see, once you have missed payments for over 270 days, you are considered in default. But the lender won’t report the default to the credit bureaus and a collection agency until 90 more days have passed. If you make a payment during this period, the default will no longer exist.
During this 90 day period, you can also get rid of the default by consolidating your loans. When you consolidate, the old loans are paid for in full, so any default that may have existed is erased. However, if you exceed the 90-day period, you cannot do either of these two things to eliminate the default.
Once your loan is officially filed as “default” you will have to take other steps to eliminate this mark from your record.
When you can make payments six months in a row on time, you will then be able to qualify for Title IV aid, which can help you in your effort to get out of default. Likewise, once you’ve made nine to ten payments on time, you will no longer be in default. However, you have to remember that these payments must be consecutive. You can’t be late one month and on time the next month and expect to move forward.
Another way to help yourself get out of default is to enter a loan rehabilitation program. Rehabilitation helps make your payments affordable for your current situation. Your guarantee agency—you know those people that insured our loan?—will help you come up with a payment plan that is reasonable for you. Your current financial situation and the amount of your income that could be considered “disposable” is taken into account when coming up with a payment amount.
Why Do I Owe More Now?
When you let your loan go into default, the lender has to pay a collection agency to take over your loan and try to get the money they are owed from you. The amount of money a collection agency costs will be added to your total loan amount. Now are you seeing why going into default is such a bad thing? It can be tough trying to pay a loan when you really can’t afford it, but by letting the loan go into default you make it so you can’t afford the loan even more! Before you let 270 days pass with no payments, contact your lender and see if you can get a loan deferment or a forbearance. This can buy you some time while you get your financial situation under control without having to sacrifice your credit in the process!