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Student Loan Default: What Is It and What Are The Consequences?

Oct 31, 2007
According to FinAid, 75% of students who default on their loans have dropped out of college and not completed their degree. Student loan default is a difficult situation to be in.

Contrary to what you may think, your student loan isn't contigent upon you graduating from college. Regardless of whether or not you graduate, you are still responsible for your student loan. Your student loan will go into default after going for nine months with no payments, or making deferment or forebearance arrangements.

What is Student Loan Default?
Default is another way of saying you have not fulfilled your obligation. Student loan default means you haven't made payments or payment arrangements on your loan.

What are the Consequences?
There are so many laws regarding student loans that it is nearly impossible to get away from them.

Some facts:

- You have a very slim chance of getting your student loan cancelled during bankruptcy. You must be "totally, permanently disabled" to even have a chance at escaping from the liability for the loan.

- Because there are no statute of limitations on collection of student loans, lenders and their collection agencies can come after you for the rest of your life, or until you repay the loan, whichever comes first.

- If you default on your student loan, it stays on your credit report for seven years. This will make it difficult to get approval for credit cards, home loans, car loans, and possibly even employment.

- You will not be able to obtain federal financial aid until the loan is totally repaid, or you make arrangements and six consecutive on-time payments.

- Any professional license you may hold may not be renewable until you've settled your student loan situation.

If your lender chooses to use a collection agency or an attorney to collect on the loan, you are subject to responsiblity for the cost of the collector or attorney. This will increase the total amount owed.

Lastly, you may be sued and have up to 15% of your take-home wages garnished.

Options After Default
If you continue to attempt to ignore your loan once you've defaulted on it, your life will become more difficult, especially when the default appears on your credit report.

The best choice would be to contact your lender and try to work out a repayment plan. You may be surprised to discover that many lenders are willing to work with you. Learn what it will take to catch up, and what your payment options are once you're back on track. After 9 or 10 consecutive timely payments are made ( not wage garnishments) your loan will be out of default status and it will be removed from your credit report.

If you have only recently defaulted on your loan and your lender has not filed the default claim, you may be able to stop them from doing so by bringing your delinquency to under 270 days. Another option during this time would be to consolidate your loans.
About the Author
Peter Kenny is a writer for Shop Smart Loans. Please visit us at 0 APR Credit Cards and Home Equity Loans
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