If in case student loan is not repaid properly then there is a chance of default. If the payment is not done on the student loan over 270 days, then that may lead to default. When the student loan is in the default state, it will get transferred to a collection agency from the student loan servicing company. When it comes to federal student loans, there will be a specific collection agency and procedure which is been followed.
But there will be steps to regain the same student loan on default then there are steps to do it. By following these it is possible to bring the student loan out of debt and that is done through loan rehabilitation.
Student loan default and consequences:
It is considered as a tough place when a student loan goes to the default state. A person will lose all the abilities when his loans are in default. The first thing which must be considered is because this credit score will get ruined.
If this happens then it will take many years to get the score back in position. There are many free services through which it is possible to get the credit score. They also help in guiding things about managing tools. The second most important thing which gets affected by the defaulted loan is the collection is assigned to an agency. This agency will take the responsibility of recovering the loan.
There are many ways to recover the debt which these agencies follow and some of them are tax refund offsets, wage garnishments, or social security garnishments.
Step 1: Finding Loans
It is important to re-track the loans in the first place. Usually, people stop contacting their lenders when the loan goes default. There is a system called MyEdDebt through this it is possible to track federal student loans. This system is by U.S. Department of education. It can be accessed online as well. In case if the loan is a private loan then the person will be left with fewer options. In this case, one must contact either the bank or collection agency. There are fewer options for rehabilitation. But still, it is possible to lower the amount or in some cases negotiate the amount to be repaid.
Step 2: Assessing the Options
There are three ways through which a student loan can be taken out of default.
- First being pay off the loan. This is the best option to come out of debt. This is nothing but doing the repayment all at once. But this is not possible for many people. If they are able to pay full amount all at once they would have not ended up in default. But still, this is an option to come out of default.
- The next option is loan consolidation. This is a method where 2 or three student loans are consolidated and made as a single loan. This will have a fixed interest rate.
- Another option is loan rehabilitation. For this, the borrower, as well as department of education, should come on an agreement for an affordable and reasonable payment plan.
Step 3: Student Loan Rehabilitation incomplete
The gets rehabilitated when the borrower is making the agreed-upon payments on right time and loan is purchased by another lender. Here the outstanding costs are added to the principal balance. This may cost more and that is why experts say that a loan should not go for default. The collection costs may end up to 18.5 % of the unpaid balance and the accrued interest to the principal balance of the loan.
Once the loan gets rehabilitated, the borrower gets all the eligibility for benefits that were earlier available on the same loan which got defaulted. Some of those benefits are deferment, choices on repayment plans, forbearance, loan forgiveness, and qualification for other additional federal aids. Some of the benefits may get qualified sooner and some later.
Figure Out The Best Option:
It is a challenging job to find out the best option for you even though it is possible. So, one can ask for help from their lender. The government pays them to help borrowers. Even though they may not come with all the answers, they are considered as a best starting point.
This is the reason experts suggest CFA. It is always a good idea to hire a CFA for further guidance. It is also a great idea to refer the student loan planner for any kind of information regarding student loan.