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Default student loans
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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.
The aftereffects: 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. Other Articles |
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