What Happens If You Default On Your Student Loan
The consequences of defaulting on your student loan can be bad for your financial health.
Heres what happens when you default on your student loan.
- Your loan and its interest becomes due and payable
- You will not be able to become eligible for programs like student loan forgiveness, forbearance, deferment, and changing repayment plans
- You will not be eligible for additional financial aid
- Your loan will be reported to the 3 credit bureaus as a delinquent
- Defaulting on loans can hurt your credit score
- Your wages can be garnished to repay the debt
- Your lender can send the loans to the collection agencies for collection.
- You could have your tax return, social security and federal payments garnished.
Does Consolidating Student Loans Affect Your Credit
Student loan debt consolidation can affect your credit both positively and negatively depending on how you manage the loan.
With federal student loan consolidation, credit scores dont get hurt since you are repaying the debt in full.
If you take out a consolidation loan to repay your private student loan and again default on the new loan, then it can affect your credit health severely.
But paying off student loans by enrolling in a debt consolidation loan is always better. Because
- Once you enroll in a debt consolidation loan, it makes your payment more affordable.
- Your debts are eliminated after completing the consolidation program successfully.
- The account status will show as paid in full after you have cleared all your dues.
- You can add positive information to your credit report at various times.
- Gradually, your credit ratings will improve.
Overall, if you consolidate your student loan debts, your credit score will not suffer.
Lastly, debt consolidation can be a good option to repay your federal and private student loan debts. If you are still not sure where to start to repay your student loans, you can consult with a CFA for help. It is always recommended to consider a student loan planner to help you put together a solid payoff plan for your student loan deb
By bestdebtconsolidation_admin on December 27, 2020
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How To Get A Refund
When the CARES Act passed in March 2020, it immediately suspended student loan payments for federal borrowers. Since then, the administrative forbearance period has been extended twice and is now set to end on September 30, 2021.
Borrowers have the option to keep making payments during the administrative forbearance period. Many have taken advantage of the 0% interest rate the government set its loans to, which means 100% of the payments theyre making now go toward paying down each loans principal balance.
However, borrowers who now need money can request a refund of any federal student loan payments made on or after March 13, 2020. If you made any extra payments before that day, you will not be able to get a refund.
The process is fairly simple. First, write down how many payments youve made during the forbearance period, the date that the payment went through and the amount of each payment. You may have sent payments to several different loan servicers if you have more than one loan. Heres a comprehensive list of all federal loan servicers.
Next, visit the loan servicer website and click on its Covid-19 page, which should have information on how to ask for a refund. Most servicers will require that you call them to personally request a refund.
When you do, specify which months you want to be refunded for. Ask them how long it will take for the refund to be processed. It should be posted to the bank account that you made the payment from.
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Negotiating Lower Interest Rates For Struggling Borrowers
Sometimes circumstances make it impossible to keep up with student loan payments.
An illness or a period of unemployment can cause student debt balances to grow out of control.
Borrowers asking for help are most commonly offered a deferment or a forbearance. For many borrowers, this is a mistake as a deferment merely delays payment and allows the balance to grow.
While the deferment/forbearance route may help some people facing a temporary hardship, longer-term difficulties will require a different option. Fortunately, some private lenders have shown a willingness to lower interest rates for six months to a year to help borrowers regain control of their debt. The best-known program of this nature is the Navient Rate Reduction Program. Not all Navient employees are aware of the program or able to enroll borrowers, but by asking to be transferred to someone with Rate Reduction Program authority, borrowers can potentially get signed up.
When lenders like Sallie Mae and Navient offer a program of this nature, it is not a term of the original borrower contract. This means that borrowers cannot demand a rate reduction. Instead, they have to persuade the lender to approve it. Borrowers will usually need to share income information as well as monthly debts.
The key to negotiating an interest rate reduction under these hardship plans is to show the following:
- A desire or willingness to repay the loan
- Financial circumstances that make it impossible without some help
Make Payments While You’re In School
Another way to hold down your costs is to make student loan payments while you’re still in school. If you can afford it, making payments can reduce what you owe in the long run. It not only reduces your principal, but it also reduces the amount of interest that accrues on your unsubsidized loans and eventually capitalizes. How your payments are applied depends on a number of factors, but in most cases, payments are applied first to any accrued interest and fees, then to your principal balance. Learn how your payments are applied to your loans while you’re still in school.
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Reach Out To Your Loan Servicer
You may have options to lower your monthly payment. Many companies say that they have alternate payment programs for borrowers who might not be able to make a full payment. These plans may include:
- graduated repaymenta plan where your payments start out lower and gradually increase over time.
- extended repaymenta plan where you pay less each month but extend the life of your loan over a longer period of time.
Asking for help when you run into trouble can keep you from falling further behind. Contact your student loan servicer and ask what options are available to you. Your student loan servicer is the company that sends you a bill each month.
Student Lines Of Credit
If you have a student line of credit through your financial institution, you’ll have to pay the interest on the amount of money you borrow while youre still in school.
After you graduate, many financial institutions give you a 4 to 12-month grace period. During this time, you only have to pay the interest on your line of credit. After this period, youll pay back your debt through a repayment schedule agreed upon with your financial institution.
Contact your financial institution to get information about paying back your student line of credit.
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Attorney Student Loan Repayment Program
The Department of Justice Attorney Student Loan Repayment Program is an agency recruitment and retention incentive program based on 5 U.S.C. § 5379, as amended, and 5 CFR Part 537. The Department selects participants during an annual open season each spring. Any Justice employee serving in or hired to serve in an attorney position may request consideration for the ASLRP. The Department anticipates selecting new attorneys each year for participation on a competitive basis and renewing current beneficiaries during existing service obligations, subject to availability of funds. ASLRP benefits are paid directly to the loan holder, not to the individual attorney. Initial acceptance of ASLRP funding triggers a three-year service obligation to Justice. To receive ASLRP benefits, the attorney must qualify, the attorney’s student loans must qualify, and all statutory requirements must be met. Attorneys who do not complete their service obligation must repay the Department for all funds received through the ASLRP.; Please review the ASLRP Policy for more details.
ASLRP Forms;
IMPACT OF THE CORONAVIRUS AID, RELIEF, AND ECONOMIC SECURITY ;ACT; ;
- Please note that this policy guidance applies only to attorneys participating in the Department-wide Attorney Student Loan Repayment Program overseen by OARM and not any individually negotiated or component-run student loan repayment programs.;
Reasons To Bring Up Your Student Loans
Did you go to a great college? Was it expensive? Was that great education part of the reason you were hired?
If your education is a big factor in your selection for the position, it makes sense to point out that it wasnt free. Student loans are a huge expense for many graduates, and if paying them off is a big challenge for you, it is definitely fair to bring them up.
Do you have multiple job opportunities?
This issue especially applies whether you are looking at a government position and a private sector position. If you are negotiating with a private sector company, you should point out that student loan forgiveness programs are a HUGE perk for government employees. If they want to secure your services, merely beating the salary isnt enough, they have to compete with this amazing benefit.
Even if you dont have multiple job opportunities, it still pays to research what other employees in your industry pay. If you just took a job at one of the three large accounting firms in your city, and you know the other two provide student loan assistance programs, you could use the competition as an example of the current trend.
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Negotiating Interest Rates On Federal Loans
Federal loans are a different animal when it comes to negotiating lower rates.
Interest rates on federal loans are set by Congress. This means that federal loan servicers will not lower interest rates, regardless of the strategy used by the borrower.
Borrowers do have the option of income-driven repayment plans and student loan forgiveness, but despite these excellent federal protections, the rate will remain the same.
The only way to get a lower interest rate on this debt is to refinance the federal loans with a private lender. This move can be dangerous because it means that all of the federal protections will be gone forever. As a result, a private refinance of federal debt is only recommended for borrowers who are in a strong financial situation.
Find Out About Consolidating Your Private Loans At A Lower Interest Rate
Borrowers repaying their private student loans may have much better credit than they did when they first borrowed for college. Unlike federal student loans, you may be able to consolidate your private student loans at a lower interest rate.
Although consolidation and refinance opportunities for private student loans have declined since 2008, a growing number of commercial lenders offer private student loan consolidation or refinance for creditworthy borrowers.
Contact your servicer to ask about these options. You may also want to check with your bank or credit union to see if they offer similar products.
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The First Settlement Offer: The First $80k
In May 2012, I got a phone call from FMS to re-up my recurring payments. At this time, the rep I had been dealing with all along offered me a settlement that was still too large for me to take advantage of in one shot. I told her as much, and if I recall correctly, she conferred with her manager and the Sallie Mae mothership, and they made me a counter-offer: an $80,000 reduction if I:
This dropped the loan term from 155 months to 45 months, a 9+ year reduction. BUT, if I broke the terms, the full balance came back at the original interest rate, minus whatever Id paid. I went for it, because saving $80,000 and 9 years was too good to leave on the table.
- Settlement starting balance: $45,375
- Made the $7000 down-payment in May 2012, which
- Reduced the amount left to pay to $36,375
I set up a $400 recurring payment every 2 weeks, including months with 3 weeks to ensure Id make the deadline with some headroom.
Add To Your Emergency Fund
As the Covid-19 pandemic demonstrated, millions of Americans dont have enough of an emergency fund to cover essential expenses if they lose their jobs.
If you have less than six months worth of expenses saved, add the refund to your rainy day fund. This money should be used only for surprises like a sudden trip to the ER or travel expenses for a funeral.
Its a smart idea to keep an emergency fund in a high-yield savings account, which pays more interest than a traditional savings account.
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Pay Down Your Most Expensive Debt More Quickly
If your budget allows for it and you have already set aside some funds for emergencies, then you could consider making a payment for more than what is required. Youll pay off your loan faster and pay less interest.
- When paying more than your regular monthly payment, provide instructions. If you direct any extra money to your highest interest rate loan first, you may save hundreds of dollars or more in extra interest payments and you may be able to get out of debt faster. If you dont provide instructions, your servicer will apply extra payments as it sees fit. This could make repaying your debt more expensive than it needs to be.
- Consider using these sample instructions. You can use the sample letter text below in a letter, email or message sent via the Send a Message or Contact Us feature when you log into your account on the servicers website.
- Helpful servicers will generally accommodate your request. Youll want to be sure your servicer responds to your request so you know if you need to send additional instructions
Sample text: Paying more than you owe
You can copy and paste this text.
I am writing to provide you instructions on how to apply payments when I send an amount greater than the minimum amount due. Please apply payments as follows:
After applying the minimum amount due for each loan, any additional amount should be applied to the loan that is accruing the highest interest rate.
Thank you for your cooperation.
Enroll In A Graduated Repayment Plan
A Graduated Repayment Plan is perfect for someone who doesnt qualify for an income-driven repayment plan for their federal loans, but cant afford their payments under a standard 10-year term.
With a Graduated Repayment Plan, your payments start out very low, regardless of your income. Every two years, your payment increases. After 10 years of making payments, your loans are paid off.
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Can You Negotiate Your Student Loan Debt
When you signed up for a loan from a financial institution to help pay for college tuition, you probably used it to bridge the gap between grants, scholarships, and other money. And you may not have thought of it as a burden, merely as a debt you would need to one day pay.
With the economic downturn of the 2010s, many graduates are finding theyre having a hard time paying their student loans. It may feel as if youre drowning in debt, but you have options. You can negotiate your student loan debt, which is kind of like refinancing your house into a more manageable monthly payment.
There is light at the end of the tunnel, and your financial institution can help you find it.
Consolidate Your Federal Loans Through The Federal Government
You may have already considered;consolidation; the process of combining;all your separate student loans and paying them off with a single new loan.;
Consolidating wont reduce your debt, but it will mean fewer bills.
If you have multiple federal student loans, you can consolidate them through a federal;Direct Consolidation Loan.
The federal government doesn’t consolidate private loans, so if you’re carrying both private and federal student loans, read on for information about how to consolidate them all together.;
The advantages of federal loan consolidation
Consolidation helps you pay back your student loans more efficiently while allowing you to:
- Avoid the risk of default by combining your federal loans through a Direct Consolidation Loan.
- Lower your monthly payments by opting for a longer payment term .
- Remain eligible for government programs that help manage student loan debt including some repayment plans, deferment and forbearance, and loan forgiveness opportunities.
The drawbacks of federal consolidation
While there are significant benefits to consolidating your federal student loans, make sure you’re aware of the potential cons.;
One important note: consolidating;some;of your federal loans doesn’t mean you have to consolidate;all;of your loans. For example, say you have 10 federal loans. Two of the loans have really low interest rates;;less than 3%. The others are 7% and above.
How to consolidate your federal student loans
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Options For Paying Off Private Student Loan Debt
If you have multiple private student loan debts, then you can repay them in many ways. You can consolidate your student loan debts to repay them. With consolidation, you can merge other debts as well. Apart from consolidation, you can settle your debts as well.
Here are some important things to understand when paying off your private student loan debts.
Determine your total debt
First, you should determine how much debt you owe. Determining the total debt you owe is important to understand where you stand, what will be the repayment strategy. Also, it helps to calculate the interest rate that youre supposed to pay.
Take out a consolidation loan
If youre looking forward to paying off your student loans in easy and affordable monthly payments, you can use a private consolidation loan to consolidate all your private student loans. Make sure the interest rate of the consolidation loan is low and affordable.
Make payments on time
While youre taking a debt consolidation loan to consolidate all your educational loans, make sure you do not default on your loans or become delinquent. If you do not make the payments on your consolidation loan, you may hurt your credit score terribly.
Settle your private student loan debts
You can also avail the option of settling your debts. You can negotiate with your lender to lower the total amount of debt. Also, you can enroll in a debt settlement program for settling your debts.
