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The Consequences Of Defaulting On Federal Student Loans

do not ignore student loan defaultIgnore your federal student loans and you’ll find yourself in default. That’s when the real trouble starts.

We know federal student loan payments can be difficult to make each month. If you’re not on a repayment plan that factors in your income, the bill can be nearly impossible to pay.

Falling behind is bad. Falling into default is even worse.

Here’s how it all plays out.

The Difference Between Delinquency And Default

In the real world, you default on a loan when you fall behind. Not so in the case of federal student loans.

When you fall behind in your payments on federal student loans, you are delinquent. It means you haven’t lived up to your obligations to make payments to the student loan company.

But it doesn’t mean you’re in default. Default occurs once you’re 270 days past due on your federal student loans.

Both delinquency and default are going to have negative effects on your credit report, but that’s pretty much the end of the similarities.

Consequences Of Federal Student Loan Default

If you’re delinquent on your federal student loans, the credit impact and the collection calls are going to be difficult.

But it’s default that you really need to fear.  Once the federal student loan is in default, the entire loan is immediately due and payable.  You don’t have the right to get a deferment, forbearance or any other repayment plan – it’s a, “pay in full, cash at the door,” situation.

Beyond that, you lose your ability to get additional federal student loans if you’re in default on your existing loans.

The Internal Revenue Service can take your federal and state tax refund to collect any of your defaulted student loans.  Your employer can take part of your income as well.

The government may choose to sue you for the balance due, though I’ve seen this happen primarily with people who are self-employed or don’t get tax refunds.

That’s to say nothing of the additional fees the government tacks onto defaulted student loans.

Avoid Default Before The Problem Gets Worse

If you’re behind on your federal student loans, catching up before they go into default will prevent the negative consequences.

Thankfully, there are options for avoiding default.  You’ve got deferment or forbearance, as well as the possibility of income dependent options.

You can look into some of the other standard repayment plans. Think about consolidating your federal student loans, if that’s an option.

With so many choices when it comes to federal student loans, it seems a shame to let default take over your life.

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By |October 21st, 2013|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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