Defaulting on Student Loans
By Elisa Kronish
September 04, 2008
Besides the balance of your loan, defaulting may make you responsible for other costs that can add up to 25 to 50 percent more than the principal loan and interest. These additional costs include:
- Collection agency’s commission and collection costs.
- Late charges and interest accrued.
- Legal and court fees.
- Telephone calls made by your school in attempts to collect.
- Don’t borrow more money than you need or feel you’ll be able to repay.
- Make sure you understand the terms of your loan agreement.
- Keep all your student loan documentation – letters, promissory notes, canceled checks – in one place.
- Write a reminder in your datebook on each payment-due date, or setup automatic electronic payments.
- Include your account number on your check when mailing a payment.
- Alert your lender if you know a payment will be late.
- Notify your lender when you graduate, drop out of school or drop below half-time.
- Notify your lender as soon as you change your name, address or phone number.
- Contact your lender immediately if you are having trouble making payments; there is help available before it’s too late.
How to Avoid Default
The bottom line in avoiding default is to pay on time. To keep your payments on track,
What to Do If You’re in Default
To get out of default, you must make arrangements with your lender. If you can work out a repayment schedule within 60 days of default, some collection agencies will waive or reduce their collection fees. If you’re not sure who your lender is, ask school’s financial aid office. Once you’ve made 12 regular payments, you can apply for “rehabilitation.” Once you’ve received rehabilitation status, you are no longer considered in default.
A student loan can help you fulfill your educational dreams, but defaulting on that loan can be a nightmare. To minimize default penalties, deal with it immediately. For more information on repaying a defaulted loan or to verify the agency servicing your defaulted student loan, call 1-800-4-FED-AID.