Your credit rating will take a hit. That means any new applications for credit may be denied or given only at the higher interest rates available to risky borrowers. A bad credit rating can follow you in other ways. Potential employers often check the credit ratings of applicants and can use it as a measure of your character. So do cell phone service providers, who may deny you the service contract you want.
A prospective landlord might reject your application. As part of the U. Debt collectors also may tack on fees to cover the cost of collecting the money. It may be years down the road before the federal government gets involved, but when it does, its powers are considerable.
It can seize your tax refund and apply it to your outstanding debt. It can garnish your paycheck, meaning it will contact your employer and arrange for a portion of your salary to be sent directly to the government. These dire consequences can be avoided, but you need to act before your loan is in default. Several federal programs are designed to help, and they are open to all who have federal student loans, such as Stafford or Grad Plus loans, although not to parents who borrowed for their children.
The government may even contribute part of the interest on the loan and will forgive any remaining debt after you make your payments over a period of years. The balance is indeed forgiven, but only after 20 to 25 years of payments. The payments may be reduced to zero, but only while the indebted person has a very low income. The Public Service Loan Forgiveness Program is designed specifically for people who work in public service jobs, either for the government or a nonprofit organization.
People who participate may be eligible for federal debt forgiveness after 10 years on the job and 10 years of payments. Details of these federal programs are available online , as is information about eligibility. It is important to remember that none of these programs are available to people whose student loans have gone into default. A good first step is to contact your lender as soon as you realize you may have trouble keeping up with your payments.
The lender may be able to work with you on a more doable repayment plan or steer you toward one of the federal programs. There is an upside to student debt. If you keep up your payments, it will improve your credit score.
According to Experian, consumers with student loan debt on average have a higher credit score than those who are student-debt-free. That solid credit history can be crucial for a young adult trying to secure that first car loan or home mortgage. A true worst-case scenario was a man who found himself with armed U. He borrowed the money 29 years earlier and failed to repay the loan. The government finally sued.
According to the U. Marshals Service, several attempts to serve him with a court order failed. Contacted by phone in , he refused to appear in court. Whenever your loan falls into a default status, it will also be noted on your credit report and will reduce your credit score. If you do end up having your wages garnished, you have the right to appeal the wage garnishment and request a hearing. Remember that you can only consolidate student loans that are no longer in default status, so you will need to find a way to make at least three consecutive monthly payments on time in order to bring your account back to a healthy state.
Loan rehabilitation programs are designed to fix your credit and have all negative information about your defaulted student loan removed from your credit files. When you sign up for a loan rehabilitation program, you will be required to make between nine and 12 payments on time in an amount that you can afford and that has been agreed to by your lender or the Department of Education.
This process helps to restore your credit and helps to bring your account up to date. I want to get them out of default.
Any advice? A: I know those student loans seem overwhelming right now, especially given your modest salary. But there are some steps you can take to improve your situation. Start by going through the process of rehabilitating your student loans to clear up your student loan default.
Read this article which explains everything you need to know about fixing defaulted student loans. Also read this post about smart ways to pay off student loans. Lynnette has been seen on more than 1, TV segments nationwide, including television appearances on Oprah, Dr. Phil, The Dr. All information on this blog is for educational purposes only. You may not receive any additional federal student aid if you are in default on any federal student loan until you have taken steps to bring your federal student loan out of default.
If you are behind on your federal student loan payments and being contacted by a debt collector, you may be able to arrange repayment options to get out of default. Searches are limited to 50 characters. Please do not share any personally identifiable information PII , including, but not limited to: your name, address, phone number, email address, Social Security number, account information, or any other information of a sensitive nature.
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