How to Recover from Defaulting On Student Loans
Originally Posted On: https://www.credello.com/
Millions of Americans have student loans. Many of them are able to pay them back eventually, but others default on them. Defaulting on personal loans is not something anyone wants to happen, but if it occurs, it’s not the end of the world. It’s possible to recover eventually, and we’ll talk about how you can do that in the following article.
What Does Defaulting Mean?
The term “defaulting” refers to situations where a person can’t abide by the terms set forth in a loan for which they took responsibility. In other words, you’re not able to pay funds in accordance with the loan’s agreement terms. This happens with students, but it can also occur with corporations or even governments.
How Do You Know You’ve Defaulted on a Loan?
There are private entities that might loan you money for college, and there’s also the federal government. With the federal government, you’re considered to be in default if you miss just one payment.
Some private lending entities might have a more liberal definition of what it means to be in default. You will have to check the details of your loan agreement to see when the lending entity considers you to have defaulted.
What Happens Following a Default?
Often, if you default on a student loan, the lender will immediately demand that you pay the full amount. They call this process “acceleration.”
The entity to which you owe money might now have the option to withhold your tax return or garnish your wages. Going into default also usually causes your credit score to drop.
If you borrowed money from the federal government for school, you also can’t borrow any more from the same source until you pay off what you owe.
Loan Rehabilitation Programs
Coming back from a student loan default isn’t always the easiest process, but it’s doable. You might be able to enter a loan rehabilitation program. These voluntary agreements stipulate that you must make a total of nine consecutive monthly payments on the loan’s balance within 20 days of its due date.
If you agree to this, the IRS will release your tax return to you, and your wages will not be garnished. Entering one of these programs acts as a show of faith to the lending entity that you’re making a genuine effort to pay off what you owe.
Loan consolidation is another option. You can refinance federal student loans with a private lender if you have some. You can also set up a direct consolidation loan. You’ll repay an adjusted loan amount according to a repayment plan directly driven and determined by the amount of income you’re making.
Loan consolidation only makes sense if the new loan and rate are more to your benefit than what you currently owe.
You Can Come Back from Student Loan Default
Coming back from a student loan default is possible if you’re determined. You can rebuild your credit score in time if it is damaged. You can also look into either loan consolidation or a loan rehabilitation program.
To determine which of these is a better option for you, you may want to talk to a student loan consultant or specialist. These are individuals who help borrowers in default situations. They can speak to you about the options available in more detail. They will tell you about the cons and pros of each strategy that’s on the table and offer you candid advice.
Student loan default is relatively common, and options exist that will get you back on stable financial footing. Try to be as practical as possible with your spending until you can get out from under this financial obligation.