Graduating and finding your first job is an exciting time in your life. It could also mean that it’s time to start paying back your student loans (Eeeeek!). Many college graduates enter the workforce with thousands of dollars in student loan debt. In fact, about 44 million graduates have (combined) over a trillion dollars of outstanding student loans.
How to Deal With Your Defaulted Student Loan Accounts
If you don’t make your payments, calls from debt collectors can leave you wondering if your degree was worth getting into debt. It’s important to take immediate action to make the loan current. Here are a few things you can do to deal with defaulted student loan accounts.
Effects of Student Loan Default
When you default on a student loan, your lender will begin a collection process. If you still don’t pay, the bank can put a bank levy on your assets including your home. A loan default can also make you ineligible for forgiveness programs, including deferment and forbearance. The lender can also garnish your wages, and you can ruin your credit score.
Private vs. Federal Loans
If a private lender funded your loan, you’ll need to contact your lender to arrange payment or negotiate a change to your loan terms. Students with Federal loans have a few more options, including loan rehabilitation, loan consolidation, and repayment in full.
Under a loan rehabilitation plan, the lender will work with you to set up affordable monthly payments based on your income and expenses. When the rehabilitation is complete, the lender removes the defaulted status from the loan, and collection activity will stop. Interest may continue to accrue based on the type of loan you have. Contact your lender to start the loan rehabilitation process.
Another option to repair a defaulted student loan is loan consolidation. You can combine multiple Federal student loans into a Direct Consolidation Loan. You can usually consolidate your loans when you graduate or are in school less than halftime. When the consolidation is processed, you’ll no longer be in default. However, you will most likely increase the length of the loan repayment period.
Keep in mind that once you consolidate your loan, you’re stuck with the new loan until it’s paid off. The original loans are paid in full by the consolidation loan. Most Federal student loans can be consolidated. Contact your lender to get started.
Repayment in Full
If your financial situation improves, you can repay a defaulted loan in full. Contact your lender to make payment arrangements. When you repay the loan, your lender will remove the defaulted status. If you’re unsure who holds your loan, you can log into to your Federal loan account online to find out.
Are You Ready to Deal With Your Defaulted Student Loan Accounts?
A defaulted student loan can have severe effects on your credit rating and may limit your ability to get other loans. You’ll also lose access to loan forgiveness programs such as deferment and forbearance. It is possible to get the defaulted status removed from your loan. If you find yourself in a default situation, contact your lender immediately to work out a payment plan and make your loan current.
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