What are default payments?
What are default payments?
After all, once you sign your student loan, you are required by law to repay the loan, as the loan that you signed is a legally binding document. If you allow 270 or more days to pass before you make a payment on your student loan it will likely be considered in default. However, some financial institutions don’t consider student loans in default until you haven’t made a payment in 360 days, nearly one year.
Working with College and University Student Loan Lenders
If you are struggling to pay back your student loan because you have not secured employment, you were recently laid off, your job doesn’t pay you a significant wage that allows you to pay back the loan, you experienced a health crises, etc. contact the financial institution (e.g. bank) you received your student loan from and work out a payment arrangement that you can stick with. For example, your lender might allow you to make payments at a reduced amount or with lowered interest for six months to a year, until you get caught up in your payments.
It’s in your best interest to make every effort to contact your lender, explain your financial situation and ask them to work with you so you can repay the money that you used to pay for your college education. You should also know that even if you don’t graduate from college or university or if you attended a postsecondary school that wasn’t accredited you are still responsible for paying back your loan. This is a reason to always make sure that the school you attend is accredited, as some employers will not hire you into certain positions (i.e. generally more senior roles) if you have a degree from an unaccredited school.
Consequences of Defaulting on Student Loans
Consequences for defaulting on your student loans include:
- You could start receiving collection agency notices
- Wage garnishments
- Income tax return refunds getting intercepted by lenders
- Lower credit ratings, as defaulted student loans appear on your credit reports
- Inability to purchase homes, products and services due to poor credit rating
- Court action (you might get sued and ordered to repay the loan)
- Withholding of your Social Security benefits
- Inability to receive federal scholarships, grants and additional student loans
Additionally, you might not be able to get excused from paying back the loan even if you file for bankruptcy. Therefore, make sure that you take out loans in amounts that you and/or your parents can afford to repay after you graduate. In other words, you might have to opt to attend a quality local college or university, live at home and commute to and from your classes instead of enrolling in a top school out-of-state.
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