Preventing Loan Default

Because the financial consequences for default are severe, you should do all you can to avoid it. Being in default or delinquency with your student loans may prevent you from financing a car or a home and may impact future employment offers. There is no reason for you to go into default on your student loan but you have to be proactive. Your debt won’t go away. You must contact your creditors if you anticipate that you may be late with a payment or unable to pay at the present time.

The consequences of student loan default are serious and extensive — here's what you need to know:

• Defaulted loans are reported to national credit bureaus and can remain on your credit report for seven years.
• A defaulted loan may be turned over to a collection agency. They often charge collection fees as well as attorney costs, all of which become part of your debt.
• A defaulted loan is listed as adverse credit on your credit report, which can mean not being able to obtain a credit card, car loan or mortgage.
• A defaulted loan will make you ineligible for additional financial aid, deferments or loan consolidation.
• A defaulted loan can cause you to lose income tax refunds, and refund amounts will be applied to student loan debt.
• Holds may be placed on your college records.
• A defaulted loan can lead up to wage garnishments — up to 10% of your net wages.
• A defaulted loan may jeopardize employment by city, county, state or federal agencies or cause termination, if you are already employed.
• If you need a license to practice in your profession, it may be revoked, cancelled or not renewed.
• A loan, whether or not in default, cannot be discharged in bankruptcy in most cases.

You may prevent going to default if you are wise in choosing your repayment option. You should choose a repayment plan that is best for your financial situation. You lender will assist you in making a choice.

One way to avoid default is to apply for student loan deferment or forbearance. This helps to postpone your loan payments until you can afford to do so once again.

For more information, visit the FinAid web site.