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How to Default on Student Loans

Daniel Morgan

Updated – June 19th 2019

How to Default on Student Loans

 

How to default on student loans is not a hard thing to do but definitely not a suggested.

Still now, well deep into 2019  opportunities and careers are still coming to far and few. More and more students are graduating with student loan debt up to there necks and can’t see landing a job happening for months.

Also with so many layoffs and employers going overseas many of us have to stop paying on our student loans just to keep the rent and the mortgage paid.

The problem is once we stop paying on the loans a new path of repercussions starts to birth and brings a full load of new financial problems with them.

So what happens?…it raises the question “what happens if you default on student loans”. That is a question we will dig into more a little bit later.

First lets discuss how default on student loans can happen.

How to Default on Student Loans

Default on student loans happen last in the no payment process. What does this mean?

Well before a student loan enters into default it first becomes reported as late, then considered delinquent. After the delinquency stage a student loan becomes a defaulted student loan

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Late Status

If you find yourself late on your student loan payment don’t be to concerned about it. As long as you make your payment no more than 15 days after the payment date. With federal student loans a late payment usually will not have to much of a negative impact if you take care of it in a timely manner.

Delinquent Status

Now if you go delinquent on your student loan this may be a little bit more serious. A student loan becomes delinquent 30 days after the due date. If the borrower remains delinquent, the non payment will begin to be reported to the three credit bureaus and negatively affect your credit score and credit report. If the loan goes to long in a delinquent status the loan will move into a default status

Default

After becoming delinquent 30 days after your payment due date, you become officially on a direct path toward defaulting. Student loan default occurs after 270 days past due. A collection agency will be given the rights to the debt. They will demanding payment for their cost and on the loans themselves.

So that is the timeline and process of how to default on student loans.

Now that we have addressed that questions let’s talk about what happens if you default on a student loan.

What Happens if you Default on Student Loans

Defaulting on a student loan is definitely something you want to avoid if at all possible.

The decision to allow default on student loans can be a devastating decision and therefore, bring forth some serious penalties.

Here are some of the initial pitfalls of defaulting on a student loan and default on student loans

  • Decrease in credit rating

The default on a student loan will be documented and reported on your credit history. The defaulting status will continue to be view-able to banks, lenders and financial lending representatives. This will greatly impact your ability to be eligible for loans, mortgages, rentals  and employment opportunities in a negative way.

  • Increased Interest Rates

Alongside of its effects on your credit score, creditors will look negatively at default on your credit report, this will result in higher interests. Interest rates will increase due to collection penalties, because of the default.

  • Collection Penalties and Extra Cost

Collection agencies receive the transfer of the loans once default has occurred by the student. The collection agency will add all of their own interest, fees, penalties and cost to your loan balance. Your will be completely responsible for all that the collection agency includes in to your loan.

  • Wage Garnishment

Garnishment of your income rather it be employment wages, Social Security, retirement or whatever form of income you are receiving will be automatically taken out of your compensation. Usually the deduction will start at 15% then max out at 25% of your gross income each paycheck.

  • Tax Refund Offsets

Defaulting on a student loan can easily result in the offsetting of your tax refund. The offset is considered as a penalty therefore, all of the interest, fees, collection cost and all other expenses added to the loan are paid on by the tax offset funds before any of it is applied to your actual loan balance. In addition to that because your interest accrues at a higher rate when in default if you allow your default to go unresolved, you could end up losing your tax refund year after year and still not see a dramatic drop in your loan balance.

  • Ineligible for Student Loan Forgiveness Program

what happens if you default on a student loan therefore, you will lose any rights you have to any student forgiveness loan.

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How Can I Get Help?

Professionals that help individuals facing default on a student loan do exist. 

A professional student loan consultant can discuss student loan assistance program options with you and provide you with federal student loan services.

Be sure to ask about programs like student loan consolidation gov, refinance student loan programs and cancel student loans options. Click here to learn more about seeking professional assistance.

Stay Positive

Now that you understand how to default on student loans, you are equipped to stay out of defaulting on student loan accounts. And definitely keep you from pondering the question of what happens if you default on a student loan.

Don’t let the frustration of default stress you out. Simply contact a student loan professional and get the direction you need.

Be open to all of your options, some options may be more ideal or attractive than others. Bottom line is to get out of default and start rebuilding your financial portfolio.

How to default on a student loans will no longer be a question worth mentioning for you.

 

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