Defaulting on a Student Loan: FAQ

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Question: I took out a student loan over 20 years back. I haven’t paid it back, and no one has contacted me. Will my children also find this forgiveness for their own student loans?

Answer: No forgiveness for your children. Many years back, the accounting was faulty, and there was no checkup on loan payments. That is not true today. Payment penalties accumulate, and the penalties can be severe as they compound over time.

Question: When are student loans considered in default?

Answer: After 6 months of failure to pay, you are usually considered in default. That is so, unless you have applied for deferment, forbearance, or cancellation.

Question: Suppose I have not repaid on my student loan for many years. Can I negotiate to get penalties dropped or reduced?

Answer: You can try to negotiate, but chances of success are poor. Student loan holders seldom negotiate, and they very seldom make special exceptions.

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Question: My student loan is in default in another 30 days. What will happen to me?

Answer: The lending agency that has your loan can take action against you to recover the defaulted loan by using the authority of state and federal law. For example, they may sue you (and collect the cost of their lawsuit against you too). Or they may harm your credit by notifying national credit bureaus of your default, hurting your credit rating for up to 7 years. Poor credit makes it difficult to borrow money, raises credit card and loan interest rates, and can make it difficult, expensive, or impossible to make a major purchase, such as a car or a new home. They may also garnish up to 10 percent of your wages, put a claim on you tax refunds, and cause you to be rejected for any more federal student aid.

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Question: How do I get out of default?

Answer: You are out of default after making 12 consecutive monthly payments. Then you are eligible to apply for a deferment. You can also request that the default be cleared from your credit report.

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Question: I am in default, and want to make payments. But I cannot afford to pay the monthly amount due. Will the lender allow me to pay less?

Answer: Yes. The law says that you are allowed to pay only what you can reasonably afford. Gather your financial records, call the lender, and seek adjustment to a reasonable monthly amount. The lender can allow you to pay as little as $5 or $10 per month if your situation warrants.

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Question: Will a lower monthly payment cure my default status, and then may I reply for a deferral?

Answer: After 6 months of steady loan payments at the lower amount, you are eligible for new federal student loans. After 12 months, you are out of default and are eligible to apply for a deferral. Interest will however continue to accrue on the unpaid balance, even with deferral.

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Question: I have 3 student loans. Two are in default, and one is up to date. Can the 3 loans be consolidated into one single loan? Is there any benefit in doing this?

Answer: You can consolidate or refinance the loans into one single loan. Then you are no longer in default on any loans. And you are now eligible for new federal student loans.

Next: Student Loans and Wage Garnishment

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