A Student Loan Default can be defined as – defaults made by the borrower to the creditor of the loan through the breach of the terms and conditions of the student loan contract.  If you are a student who has not fulfilled your obligation to make regular payments on your student loan debt, then you have fallen into the dreaded debt trap.  By walking away from your debt, a series of consequences begins to develop.

Initially the lender will try and contact you repeatedly for a few months, between 90 and 120 days, to fulfill your payment obligations.  This will either happen after you have separated from college or other school, or if you drop your course load to under half-time enrollment.  If the creditor is unable to reach you in this time or if you continue to ignore your financial responsibilities, your student loan debts remain delinquent for 270 days or it becomes 270 days past due at any time.  This leads to the loans into “default” status.

The declaration of a student loan default happens after this delinquency period.  Title 4 of the Higher Education Act authorizes lenders to exhaustively use all efforts to find and contact you, the borrower and debtor, to make payment.

If the lender’s efforts in locating you are unsuccessful, your student loan will then be placed in default.  At this stage the loan will be turned over either to the Department of Education or to a state guaranty agency.

Also, the maturity date becomes accelerated once the loan enters the default stage.  When this happens, the full amount of the student loan becomes due right away.

It may be possible to prevent default if you can show evidence that your student loan should not be in default status.  If you had a National Direct Student Loan/Perkins Loan, you can contact your school for guidance.  If it was a Federal Family Education Loan, contact the guaranty agency responsible for paying the insurance claim on your loan, and plead your case with them.

We will get into Student Loan Defaults a little more in other articles.

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It is commonly noted that once you have made six regular payments, there is a chance for you to be eligible for an additional Title IV aid.   After you have completed twelve regular payments and applied for and received “rehabilitation”, you will no longer be considered in default.   It is also at this time when the record of the default will be eliminated from the reports to credit reporting bureaus.

And, for further information about the available repayment options that could suit your needs, just contact your lender.   The financial aid office at your school should also be able to tell you the name, address as well as the contact number of your lender.  They can also give you supporting help and advice about your repayment problems.

Student Loan Rehabilitation

As the phrase suggests, the loan rehabilitation is a program designed to rehabilitate the defaulted student loans and return such loans to a favorable status.   This program actually requires 12 consecutive monthly payments of a predetermined agreeable amount.

It is often suggested that those borrowers in default status must contact their servicing agency to define the loan rehabilitation program that is reasonable to both parties.  However, if a reasonable rehabilitation program cannot be reached with your lender, there is the office of the Federal Student Aid Ombudsman, which is a neutral party, designed to resolve any disputes.

In conclusion, the defaulted student loans are no doubt a serious problem that must be healed as soon as possible.  This is for the fact that when the case intensifies, certain damages not only on the person’s credit rating, but other consequences as mentioned above will greatly result like a brush of fire.

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- Garnishment of Administrative Wage: Under the Higher Education Act of 1965, the Department of Education as well as the state guaranty agencies may require employers who employ individuals with defaulted student loans to take away 10 to 15 percent of the debtor’s disposable income per pay period.   The garnishment of the administrative wage is actually a resort taken only when the debtor refuses to voluntarily repay his or her defaulted debts and may persist until the total balance of the outstanding debt is paid back.

- Treasury Offset Payments: Aside from administrative wage garnishment, the Department of Education has the right to request the Treasury Department to perform a federal offset against the federal income tax refunds as a way of collecting defaulted student loan debt.   To simply put, the borrowers with loans in default status may forgo any federal tax refunds until he or she has repaid the defaulted loan.

Legal Action

Litigation can be pursued by the Department of Education as well as state guaranty agencies as a means for collecting the defaulted loans.  It means that if the debtor refuses to repay the debt voluntarily, he or she is subject to prosecution in a state or federal district court.   The borrower is therefore sued for the outstanding debt as well as for the attorney and court fees.   But, these methods are usually considered as last resorts, thus need prior notice of the proposed offset.

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