As a student loan borrower, it is your responsibility to keep track of your debt as well as repay what is borrowed. It is our mission here in the Debt Management Department to alleviate any confusion you may have when receiving financial aid and knowing what options are available both during school and upon graduation. Paying your student loans back can help build a positive credit score, while defaulting on your student loans can be detrimental to your credit. Always talk to your loan servicer/lender if you are having trouble making payments. You have options!
Delinquent Vs. Default
The best way to avoid a bad credit history is to know your repayment options, but first let’s define Delinquent vs. Default on your student loans. This will give you a better understanding of default and its consequences:
- Delinquent-Delinquency begins on the first day after you miss making a payment on your student loan. In other words if you have missed any of your scheduled loan payments you are considered delinquent.
- Default-A borrower is considered in default when they have been delinquent (have not made any payments) for 9 months(270 days).
Take Action! Avoid Delinquency and Default!
- If you know you are unable to pay on your student loans contact your lender ASAP. You may be eligible to get a Deferment-A postponement of payment on a loan. Forbearance-Allows you to temporarily stop making payments on your loans or extend the amount of time for making payments. **Note-Interest will accrue on unsubsidized loans. The longer you take to pay off a loan, the more interest you will pay over the life of the loan.
- Be sure your lender knows if you are in school. If you have returned back to school you may be in a Grace Period-A time period when loan payments are postponed.
- Always notify your lender or servicer when you have a change of address, phone number or change in enrollment status.
- Create a monthly spending plan.
- Keep credit card debt to a minimum or avoid using it completely.
- Make your loan payments on time.
Consequences of Default – Don’t Let It Get To This Point!
*Important Note: Student loans are generally not dischargeable through a bankruptcy!
- Defaulting on your student loans can appear negatively on your credit report for up to seven years. This can effect your ability to buy a house, a car and even prevent you from obtaining loans in the future!
- Your loans may be turned over to a collection agency which will add additional collection fees to your loan amount!
- Your federal and state tax refunds may be taken!
- Your wages may be garnished from your paycheck!
- Your professional license could be withheld until a payment arrangement is made with your loan holder!
- You would not be eligible to receive any future student loans until you repay the loan in full!