Introduction
Thestudent loans just like the other forms of financial aid are a service that issubject for repayment.
However, althoughaware of such fact, many borrowers still fall to the trap of walking away from studentloan debt which then results to series of consequences.
They tend to ignore their being summoned toenter repayment usually either 90 or 120 days after separating from school orafter dropping below half-time enrollment.
With this, the loans remain delinquent for 270 days or become 270 dayspast due at any time, leading the loans to “default” status.
Student Loan Default,Defined
Defaultedstudent loans are actually defaults made by the borrower to the creditor of theterms and conditions of the student loan contract.
It is usually caused by the act of escapingfrom debts, leading to unfavorable consequences on the part of the borrower.
Basically,prior to the declaration of student loan default is the delinquencyperiod.
At this period, the lenders ofstudent loans authorized under Title IV of the Higher Education Act willexhaust all efforts to find and contact the borrower.
If the lender’s efforts of locating thedebtor are unsuccessful, the loan will then be placed in default.
It will be turned over to either the stateguaranty agency or the Department of Education.
And, once the loan enters the defaultstatus, the maturity date is accelerated, making the overall payment in fulldue right away.
The Consequences of StudentLoan Default
Whenthe loan enters the default status, several consequences are connected toit.
Some of them are mentioned below:
· Theloans may be turned over to a collection agency.
· Theborrower will be liable for all the costs associated with collecting the loan.
This may even include the court costs as wellas attorney fees.
· Theborrower can be sued for the entire amount of the loan.
· Thewages may be garnished.
· Thefederal and state income tax refunds may be intercepted.
· Thatfederal government may withhold part of the Social Security benefit payments.
· Onthe credit record, the defaulted loans will be mentioned, making it difficultfor the borrower to get an auto loan, mortgage and even credit cards.
Note that having a bad credit record can harmyour ability to find a job.
·Theborrower’s chance to receive federal financial aid will now be impossible tohappen until he repays the loan in full or make arrangements to repay what healready owe and make at least six consecutive, on time, monthly payments.
· Federalinterest benefits will be denied.
Asidefrom the above mentioned consequences, there is also some other less-obviousconsequences that are oftentimes omitted from consideration.
One of those could be the rule that thefederal student loan borrowers holding defaulted student loans are no longerentitled to any deferments or forbearances.
Subsequently, there are some instances when the loan default may forcethe individual to consider or take a semester off.
This must be taken due to his or herinability to qualify for federal student aid as well as to afford the cost ofhigher education independently.
What’smore, there is a great possibility for those borrowers who defaulted on theirstudent loans to lose their professional licenses.
For instance, the lawyers who possessdefaulted loans may be subject to have their license to practice lawdisavowed.
The doctors and certifiedpublic accountants would also fall into this category.
Lastly,the borrowers who just ignored summons for loan repayments will become liablefor all fees associated with collecting the federally financed loan.
This means that the borrowers will end uprepaying their outstanding debt, plus up to 25 percent in contingent fees inorder to satisfy the student loan debt.
Note that this rule is actually consistent with the Higher Education Actas well as on the terms of most borrowers’ promissory notes.
The Collection ProceduresInvolved with Defaulted Student Loans
Mostof the guaranty agencies’ stringent collection procedures have successfullydeterred student loan neglect.
One ofthe supports for this claim is the steady decrease and current all-time low ofstudent loan default rates.
However,although the collections department is highly committed to assisting those whoare in default and making repayment as simple as possible, the non-response inthe borrowers’ side still opens up to one or more of the following collectionapproaches:
·Garnishmentof Administrative Wage: Under the Higher Education Act of 1965,the Department of Education as well as the state guaranty agencies may requireemployers who employ individuals with defaulted student loans to take away 10to 15 percent of the debtor’s disposable income per pay period.
The garnishment of the administrative wage isactually a resort taken only when the debtor refuses to voluntarily repay hisor her defaulted debts and may persist until the total balance of theoutstanding debt is paid back.
·TreasuryOffset Payments: Aside from administrative wagegarnishment, the Department of Education has the right to request the TreasuryDepartment to perform a federal offset against the federal income tax refundsas a way of collecting defaulted student loan debt.
To simply put, the borrowers with loans indefault status may forgo any federal tax refunds until he or she has repaid thedefaulted loan.
·LegalAction: Litigation can be pursued by theDepartment of Education as well as state guaranty agencies as a means forcollecting the defaulted loans.
It meansthat if the debtor refuses to repay the debt voluntarily, he or she is subjectto prosecution in a state or federal district court.
The borrower is therefore sued for theoutstanding debt as well as for the attorney and court fees.
But, these methods are usually considered aslast resorts, thus need prior notice of the proposed offset.
Preventing Default
Thereare several ways that you can make to prevent the onset of student loandefault.
It is just somehow necessaryfor you to place your interest and efforts on preventing it.
Here are the possible ways that you canconsider:
1.Make sure that you understand your loanoptions as well as the related responsibilities prior to taking out a studentloan.
2.Simply make your payments on time.
3.If possible, inform your lender orservice provider promptly about any of the possible adjustments that may affectthe repayment of your student loan.
Incase you move or change your address, let them know.
Also, make sure that they know about thename changes, which are very possible because of marriage; graduation ortermination of studies; leaves of absence as well as transfers to anotherinstitution.
4.Ifcertain financial difficulties are encountered, try to consider applying for adeferment or forbearance on your loans.
Many experts often suggest that it is much better to defer your paymentsthan to go in to default status.
Alongwith this, ask your lender or service provider about the available optionswhile you are still making payments, before you enter the default status ofyour loan.
Always note that after youdefault, you won’t be able to get a deferment or forbearance anymore.
5.If for instance you are having troublemaking your payments, try to contact your lender as they may be able to suggestan alternate repayment options for you.
Some of the possible options include graduated repayment, incomesensitive repayment, as well as income contingent repayment.
Also note that the types of availablerepayment options currently depend on whether the student loan was issued underthe FFELP or FDSLP or Direct student loan programs.
6.A student loan consolidation can beconsidered as another way for preventing student loan default.
Combine all of your educational loans intoone big loan as this gives you the chance to send your payments to just onelender.
What’s more, you may be able toextend the term of the loan in order to lessen the size of your monthlypayments.
7.Simply keep records regarding yourstudent loans.
If possible, try to backup copies of all your letters, canceled checks, promissory notes, disbursementnotices, and some other necessary forms in a file folder.
Just be organized.
Getting Out of Default
Incase your loan already entered the default status, don’t worry.
You still have hopes if you will just try topay even just a little consideration on your debts.
The first move to take to get out of debt issimply to make arrangements with your lender to repay the loan.
It is commonly noted that once you have madesix regular payments, there is a chance for you to be eligible for anadditional Title IV aid.
After you havecompleted 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 ofthe default will be eliminated from the reports to credit reporting bureaus.
And,for further information about the available repayment options that could suityour needs, just contact your lender.
The financial aid office at your school should also be able to tell youthe name, address as well as the contact number of your lender.
They can also give you supporting help andadvice about your repayment problems.
Student Loan Rehabilitation
Asthe phrase suggests, the loan rehabilitation is a program designed torehabilitate the defaulted student loans and return such loans to a favorablestatus.
This program actually requires12 consecutive monthly payments of a predetermined agreeable amount.
Itis often suggested that those borrowers in default status must contact theirservicing agency to define the loan rehabilitation program that is reasonableto both parties.
However, if areasonable rehabilitation program cannot be reached with your lender, there isthe office of the Federal Student Aid Ombudsman, which is a neutral party,designed to resolve any disputes.
Conclusion
Havingsaid all these, the defaulted student loans are no doubt a serious problem thatmust be healed as soon as possible.
Thisis for the fact that when the case intensifies, certain damages not only on theperson’s credit rating, but other consequences as mentioned above will greatlyresult like a brush of fire.
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โพสเมื่อ 23-5-2008 12:51
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