Defaulting on student loan

Answer 1

This is a very unfortunate situation - student loans are almost impossible to discharge in a bankruptcy situation and the negative impact on your credit report will be felt for years.

If you have not already been listed as defaulting, contact your lender IMMEDIATELY. If your loans are held by the US Department of Education (ie, Direct Loans, PLUS loans, Stafford loans, etc.), you can file for a forebearance or deferment to help get you through a tough financial situation. These procedures do not count against your credit score, although the loans will be accruing interest even though you are not making payments.

If your loans are through a private bank, contact that bank IMMEDIATELY. While the private bank is under no obligation to help you, they may still be willing to work with you to permanently modify the terms of your loan.

If someone co-signed your loans with you, you need to let them know tonight for two reasons. First, if you default on the loan, their credit scores will be affected because they will be held equally responsible for paying the loan on time in full. Second, because this person is a co-signer, he/she hopefully has the financial wherewithall to make the payments for you so that you don't default.

Answer 2

Defaulting on a student loan is a serious matter. Student loans can not be discharged in bankruptcy, nor are they ever "written off" after a borrower has failed to pay for a certain length of time. There is no statute of limitations on student loan debt. The Department of Education can come after delinquent borrowers at any tine. The consequences of defaulting on student loans are severe, but luckily there are alternatives.

Consequences of Defaulting

A borrower can experience numerous consequences as a result of defaulting on a student loan. The Department of Education will begin the collection process by going to court to get a judgment against the borrower. It will then begin garnishing his or her wages. The Department will also seize the borrower's tax refunds each year until the loans are paid off. In some cases, the borrower's assets may also be seized. In addition, default makes the borrower ineligible to receive any more federal or state financial aid.

This is only the beginning of the problems he or she will face, however. If the borrower has a security clearance, it will be revoked. This could result in the loss of a job. Borrowers in default are not eligible to apply for jobs with the federal government. They are also not permitted to hold a passport. The garnishment of wages and tax refunds can continue right up until the borrower dies. Even Social Security retirement or disability checks can be garnished.

Alternatives to Default

Borrowers have a number of options available to them to help stave off a default if they can not make their loan payments. First and foremost, any borrower who experiences financial hardship can apply for an Economic Hardship Deferment. This defers loan payments until such time as the borrower's finances improve. In some cases, a borrower may be eligible for a forbearance that would also delay loan payments. Finally, there is the Income-Based Repayment Plan, which bases a borrower's payments on his or her income and family size. The IBRP can reduce a borrower's payments by up to 90 percent. In addition, after making payments under the IBRP for 25 years, the borrower's remaining debt, if any, is automatically forgiven.