November 5, 2012
Student Loan Lawsuit Default Consequences
Most federal loans enter default when payments are more than 270 days past due. Other loan types may default earlier.
If you are struggling with your loans, you may think 270 days sounds like a long time. Just remember that the consequences of default can impact you even longer.
Student loan default can mean:
Your entire loan balance will be due in full, immediately.
Collection fees can be added to your outstanding balance.
Up to 15% of your paychecks can be taken.
Your Social Security, disability income, and state and federal tax refunds can be seized.
You will lose eligibility for federal aid, including Pell grants.
You will lose deferment or forbearance options.
Outstanding fees and unpaid interest can be capitalized (added) onto your principal balance.
Impact on Your Credit
A defaulted student loan is also one of the worst entries that can appear on a credit report. A default entry is far worse than late payments. It can mean that:
You may be denied credit cards, car or home loans, or apartment leases.
Your interest rate may rise on existing loans and credit cards.
Banks may refuse to allow you to open a checking account.
You may have to pay more for car or home insurance.
You may be unable to obtain or renew a professional license.
You may be denied a job due to poor credit.
Get Back on Track
Borrowers have options—like completing a loan rehabilitation program—to help them recover from default. If your loan is in default, ASA® can help determine the best option for you. Contact us today, and take the first step to getting your loan back on track.
Recovering From Default
You may feel trapped by the consequences of default. But you can recover by paying your loan in full, entering a loan rehabilitation program, or consolidating out of default.
The benefits of completing these options include:
You can regain eligibility for additional financial aid.
Your wages and tax refunds will not be garnished.
Your loan will no longer be due in full.
You can regain access to unused deferment and forbearance time.
Payment in Full
Paying the total amount you owe—the loan plus any accrued interest and penalty fees—is the fastest way out of default.
Paying in full may not make sense for you, but try to pay as much as you can right away.
Collection costs of up to 25% are applied to your loan balance 120 days after your loan defaults, so decreasing your balance can help decrease these costs.
Get yourself—and your credit—back on track by entering into a loan rehabilitation program. You'll still face collection costs, but they'll be less expensive.
If your loan defaults, you can enroll in the loan rehabilitation program by contacting your guarantor—American Student Assistance® (ASA) is a guarantor.
You then make at least 9 qualifying, on-time monthly payments to your guarantor.
Once you have made the required payments, your guarantor will send you a rehabilitation agreement for you to sign and return.
Your loan is considered rehabilitated when you receive an official notification from your guarantor.
After you have returned the completed agreement, your guarantor transfers the loan to a new lender and servicer. The loan is then out of default, and you continue making on-time monthly payments to your new servicer.
You will be charged up to 18.5% of your total unpaid loan amount (your principal balance plus interest) in collection costs.
Your guarantor will ask your previous loan holder and consumer reporting agencies to remove the default entry from your credit report.
Keep in mind that loans rehabilitated after August 14, 2008, are no longer eligible to be rehabilitated again in the event of another default—so be sure to stay on track once your loan is out of default.
Consolidating out of default has benefits—like giving you more time to repay your loan and less expensive collection costs. But, before choosing this option, be aware of its potential disadvantages too.
To consolidate out of default, you must do one of the following:
Arrange 3 consecutive payments with your current loan holder—this is called a satisfactory repayment arrangement.
Agree to repay the Consolidation loan under an income-based, income-contingent (Direct Consolidation loan), or income-sensitive (Federal Family Education Loan Program Consolidation loan) repayment plan.
Unlike rehabilitation, consolidation does not remove the default record from your credit report.
If you consolidate, you will be charged a fee of 18.5% of your total unpaid loan amount (your principal balance plus interest) in collection costs.
You can consolidate with any lender offering Consolidation loans. Currently, the primary consolidation lender is the Direct Loan program, run by the U.S. Department of Education.
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