Student Loan Default
If you default on a student loan, it usually means that you have not made your loan payments in several months. This can negatively affect your credit and your ability to obtain loans/credit in the future. You want to avoid default at all costs by paying your monthly loan bills on time.
Consequences of Default
A student loan can go into default after 120 days of non-payment, for private loans and 270 days of non-payment for federal loans. Once this happens:
- You probably will be reported to a collection agency
- You may be asked to repay the full balance of the loan immediately
- Your employer may be required to take out a percentage of your paycheck to pay for the loan
- Your credit rating may suffer
- You are no longer entitled to any deferment or forbearance on a loan
How to Avoid Default
If you believe you will be unable to maintain your loan payments, then it would be prudent to take action immediately. Ask your lender to work with you to come up with a solution. Many lenders are willing to come up with a payment plan that fits your needs. You may qualify for deferment (temporary suspension of the loan payment) or forbearance (temporary reduction of payments). Below are additional ways to avoid default:
- Lock in a fixed interest rate on your loan
- Before you cosign a loan, make sure everyone understands the repayment terms
- Consider consolidating your loan. Both private and federal student loans can be consolidated, although they cannot be consolidated together.
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Default Student Loan | Understanding Student Loan Default explains the consequences of default. Student Loan Deferment | Learn About Student Loan Forbearance will tell you all about the benefits of deferment and forbearance.