Defaulting in your student loans can be dangerous.
Every year when the graduate roll out from the college they
leave behind everything that was attached with the college such
as book, exams Etcetera, but one thing that keeps chasing them
even after many years of graduating is the student loan debt.
While most of the unsecured loans can be discharged if the borrower
declares bankruptcy, this is not the case with student loans.
Legally a default student loans is required to pay back the
student loan under all circumstances and there is no provision
to get immunity by declaring bankruptcy.
The payment period for the default
student loans usually commences either 90 days on 120 days
from the day the session ends, depending on the type of loan.
If the student does not start making the payments for more than
270 days after the end of the session, it is treated as defaulting
and the default status is entered against the borrowers name.
The period that begins either after 90 days or 120 days till
270 days is known as the delinquency period.
The basics of student loan default:
As per the provisions of higher education act, the lenders have
the right to make all efforts to trace down the borrower during
the Delinquency period, before the default status is put up
against the borrower. If the lender is unsuccessful in either
tracing down the borrower or in getting him to start repaying
for the loan, then the loan is passed on to the government agencies
for further action. The government agency to whom the case is
forwarded is either the guarantee agency of a particular state
or the Federal department of education. Whenever a loan enters
the default status the maturity date of the loan becomes irrelevant
and the total amount becomes due immediately. Under such a situation
the borrower may at times have to pay the complete amount of
the loan right away.
The collection procedure:
The guarantee agencies follow very stringent collection procedure
for all default student loans
which enter the default status, and the effect of this can be
clearly understood from the low percentage of student loan default
cases coming up. The agencies have fortified their measures
in this field over the past few years and the default rate is
currently at the lowest. The main objective of the collection
department of the department of education is to provide assistance
to borrowers in default and simplifying the repayment procedure
to facilitate the student to pay back his student loans. However,
if the borrower does not respond to the collection agencies
notice he can get into some serious problem. For such borrowers
the collection department chooses one or more of the following
mentioned collection procedures:
1. Wage garnishment: this penalty is imposed
under the higher education act 1965. Under
the provisions of this law the Federal department of education
and the guaranty agency at the state level can make the employer,
of defaulting individuals, to deduct ten to fifteen percent
of the defaulters income for every pay period. This deducted
amount goes towards the repayment of the student loan in which
the student has defaulted, and the practice continues till the
time the total amount of loan is recovered along with the interest
applicable on it. Wage garnishment is carried out only for those
borrowers who voluntarily default in their student loans and
refuse to make payments.
2. Treasury offset: under this option a request
is made by the department of education with the treasury department
to carry out a Federal offset against the refunds provided on
the Federal income tax, so as to collect the loan debts from
the defaulting students. In simpler words this would mean that
the student will be denied all Federal tax refunds until the
time he repays for the defaulted loan.
3. Legal procedures: the collection agencies
can also initiate litigation against the borrower for defaulting
in his student loan. The borrowers who voluntarily refuse to
make any payments towards their default
student loans will have to undergo prosecution in the state
or the Federal district court. The case that is filed against
the borrower is not just to get back the outstanding balance
but also to cover up the court costs and the authoritys fee.
This method is used as the last option and can be carried out
only when the initial notice sent by the collection department
has been ignored by the borrower.
So far we just discussed the major consequences that the students
will have to face in case of default in his student loan; however
there are many other consequences which are often not considered
by the students. For example, a student who gets a default status
for his Federal loan borrowings loses some of the vital benefits
associated with Federal loans such as deferment and forbearance.
And if the student is again in need of Federal student aid he
will not be given any help till the time he makes six regular
payments for the amount decided at the end of the default case.
So it can really hinder the students prospects of getting financial
help to continue with higher education.
If the defaulting student is into a profession which requires
a professional license, then their license can also be taken
away till the time they repay for the student loan in which
they have defaulted. Professionals who come under this category
are lawyers, doctors, CPAs and so on.
All the student loan borrowers whose loans slip into the default
status will not just have to pay back their student loan but
will also be liable to pay for all the fees which are associated
with the collection procedure under the Federal finance loans
program. This fee usually comes to around 25 percent of the
outstanding loan balance. So, if youre planning to default
on your student loan just try to calculate how much more you
will have to pay, because there are no chances of you walking
away without trouble.
1. student loan consolidation service
Student Loan Consolidation: a Life saver.The fundamentals:When its getting difficult to handle multiple student...
2. student loan consolidation loans
How good is student loan consolidationThe harsh fact, in front of us today, is that the cost of education is mu...
3. student loan help
Tips to manage student loans. 1) Be practical and know the details about all your borrowings. You must be aware...