Borrowers who haven’t made any payments on their student loans for roughly nine months — 270 days — are in default status. At any given time, an average of 8.15% of borrowers are in default and 10.3% of borrowers default within the first three years of repayment, according to Education Data Initiative.
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Defaulting on your student loans not only makes you ineligible for further federal student aid until you resolve the default but it also can result in garnished wages, loss of tax refunds or Social Security checks and negative credit reporting, according to Consumer Finance.
The good news is that options are available to help. Here’s what you should do now if you’ve seriously neglected your student loan payments.
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Check Your Student Loan Status
If you haven’t made student loan payments in months and are unsure if you’re in default, you can check.
“Borrowers can check their loan status by logging in to StudentAid.gov, where they can verify loan status and obtain servicer information,” said Stacey MacPhetres, student loan expert and senior director of education finance for EdAssist by Bright Horizons. “Additionally, upon login in, defaulted borrowers will see an urgent message regarding their account statuses.”
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Contact Your Student Loan Holder
If you confirm that your loans are in default status or have received written notice that they are, you should contact your student loan holder — the entity that owns your loan, such as the U.S. Department of Education — to find out what to do next. If you’re unsure of the holder, log in to your student loan account to find the information.
Here’s a look at the different options available to get your loans back on track.
Pay the Defaulted Loans in Full
While immediately paying off thousands of dollars in student loans isn’t practical for the majority of borrowers who have defaulted, it is an option to quickly solve the problem.
Loan Rehabilitation
Another option is to rehabilitate your loans. Contact your loan holder to begin the process.
According to Studentaid.gov, a rehabilitation is only available once during the life of your loans. The steps depend on the type of student loans you have. If you have Direct or FFEL loans, you will sign a written agreement promising to make nine monthly payments within 20 days of the due date and make all required payments within 10 consecutive months. Payments, which are determined by your loan holder, will be reasonable and affordable and could be as low as $5 depending on your income.
“Completion of the rehabilitation plan will then take the loan out of default, remove it from the credit report and allow the borrower to resume repayment,” MacPhetres said.
Loan Consolidation
A final option to get out of default is to consolidate your loan(s) into a new Direct Consolidation Loan. This pays off your defaulted loans and replaces it with a new one.
However, when you consolidate, any unpaid interest is added to your principal balance, which means you’ll end up paying interest on a higher amount and could end up paying more over time than other options.
To qualify, you’ll need to either agree to repay the new loan under an income-driven repayment plan or make three consecutive, on-time payments on the defaulted loan before applying to consolidate. If you take the three-payment option, your loan holder will determine reasonable and affordable monthly payments based on your income.
Unlike loan rehabilitation, however, loan consolidation won’t remove the default from your credit history, according to Studentaid.gov.
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Sources
Stacey MacPhetres, EdAssist by Bright Horizons.
This article originally appeared on GOBankingRates.com: 2 Things You Must Do Now If You’ve Defaulted on Your Student Loans
