Easy and Simple Solutions Including Loan Repayment, Loan Rehabilitation and Loan Consolidation
The Immediate Consequences of Default
Paying off your student loans can be a daunting task in today’s economy! But there are great and affordable solutions to your student loan debt that will help alleviate your financial stress.
If you haven’t made a payment on your Federal Direct Loan (Direct Loan) or Federal Family Education Loan (FFEL) for 270 days (9 months) you are in default. As a result there is:
* An immediate increase in the interest rate of your student loan to 18.5% for loans
made before and 12.5% for loans made after .
* Collection fees are assessed by the collection agency and added to your loan balance,
* An immediate loss of Title IV Financial Aid benefits.
* An immediate report of your default to the three credit bureaus in the United States which can damage your credit rating, making it difficult and costly to get a home or car loan.
* Withholding of your income tax return to repay your defaulted student loan,
* Administrative wage garnishment of up to 25% of your paycheck, and
* Reduction in Social Security Benefits.
The 3 Ways of Out Default
There are just 3 ways out of default:
- Student Loan Repayment in Full,
- Student Loan Rehabilitation,
- Student Loan Consolidation.
Student Loan Repayment In Full
The easiest way to get out of default is to repay your defaulted loan in full with payment of all collections fees, interest, and penalties. The reality is that if you had the money to make your monthly payments, you wouldn’t be in default. Unless you have won the Lotto or have a family member or friend who will pay the loans off in full, this is not a viable option for most to get out of default.
Student Loan Rehabilitation
Reasonable and Affordable Payments
A more realistic option for getting your student loans out of default is rehabilitation, unless the lender has secured a judgment against you. You can rehabilitate a defaulted Direct or FFEL Program student loan by reaching an agreement with the Department of Education for a reasonable and affordable payment plan. You have a legal right to negotiate a reasonable and affordable payment plan if your Federal Direct or FFEL student loans are in default. If the lender has gotten a judgment against you, the lender has the choice to agree to rehabilitation.
If you have a defaulted Perkins loan, you’ll have to negotiate your payments with the school.
Just How Much Do I Owe?
Defaulted Federal Direct or FFEL loans that are owned by the U.S. Department of Education (ED) are assigned to the Default Resolution Group for collection. Any defaulted loan not owned by ED are assigned to a state or private guaranty agency or collection agency.
If you have a defaulted Perkins loan, the school who gave you the loan will hire their own collection agency. Collection agencies are tough to negotiate with if you don’t know what you are doing. The collector’s job is to make the guaranty agency or the collection agency money!
So, how much do you owe?
Surprise! You just don’t own the original amount of your loan! Remember outstanding interest, fees and collection costs can be added to the principal balance of your loan.
A guaranty association or collection agency can charge collection or late fees up to 18.5% of the outstanding loan (principal and interest). When a loan is rehabilitated all those fees are added into the principal. So, for example, a defaulted loan of 10,000 with accrued interest of $2,000 is $12,000. Fees of 18.5% or $2,220.can be added to the 12,000 for a total owed of $14,220.
These guaranty agencies and collectors will push you to agree to a monthly payment you really can’t afford. It is important that you have legal help to negotiate an affordable monthly payment so you don’t fall back into default when you can’t afford the monthly payments. If you have a Perkins Loan you must reach an agreement for a reasonable and affordable payment plan with your school or their collector. Having an experienced student debt attorney can help you get reasonable and affordable payments.
Your Monthly Payments After Rehabilitation
There is a good chances that your monthly payments will be higher because interest, penalties and collection costs will be added to the principal amount. That increases the total amount you owe and can create an Mount Everest of student debt. And of course, that increases your monthly payment which makes it harder to get out of debt. But, don’t give up hope because there are great income repayment plans, loan forgiveness and discharge programs that can give you a financial future.
Remember, you can only do this once more! If you can’t make on time payments for 6 months, you can re-negotiate a new payment plan but you can only re-negotiate once!
Any payments collected from you through Administrative Wage Garnishment, seizure of your IRS refund, reduction of your Social Security benefits or as a result of a lawsuit against you, don’t count as voluntary payments.
How Many Payments Must I Make and When To Rehabilitate My Loan?
You must make at least nine timely payments (within 20 days of due date) in a period of ten consecutive months. Perkins rehabilitation does not require that the payments be reasonable and affordable. The nine required payment amounts are set by the school and you must negotiate those payments with the school or their collection agencies if you have a Perkins loan.
The loans are rehabilitated only after you have voluntarily made all of the agreed upon payment on time and your loan has been purchased by a lender. After you have made nine timely payments, the guaranty agency or the Department of Education can usually sell your loan. The timely payments and sale of your loan “rehabilitates” the loan. You will be put in the standard ten year repayment plan or you can and should enter into an income-based repayment plan.
Advantages of Rehabilitation
Once your loan is rehabilitated, your loan is no longer in default. A new world of options becomes available to you:
*You may regain eligibility for deferment, forbearance, income based repayment plans, loan forgiveness,
* You can become eligible for new federal student loans if you make six consecutive and timely payments,
* The credit bureaus will be advised that your loans are no longer in default which can
result in an improvement in your credit score. However, late payments reported before you defaulted on loans won’t be removed from your credit report.
* The IRS will no longer withhold your income tax return to repay your defaulted student loan,
* Administrative wage garnishment of up to 25% of your paycheck will stop,
* Any reduction in Social Security Benefits will stop.
You’ll have an opportunity to catch your breath and consider your options.
Loan consolidation lets you pay off the outstanding combined balance(s) for one or more Federal student loans to create a new single loan with a fixed interest rate.
A defaulted federal student loan may be included in a consolidated loan afer you’ve made arrangements with the Department of Education and made several voluntary payments. You have to make at least consecutive, voluntary and on-time payments before consolidation.
How Much Do I Owe with a Consolidated Student Loan
When you defaulted on your student loans, you opened a pandora’s box. A guaranty association or collection agency can charge collection or late fees up to 18.5% of the outstanding loan (principal and interest). When a loan is consolidated all those fees are added into the principal. So, for example, a defaulted loan of 10,000 with accrued interest of $2,000 is $12,000. Fees of 18.5% or Can be added to the 12, 000. The consolidated loan is now for
Advantages of Consolidation
You can get out of default by getting a consolidated loan with a repayment plan that matches your income and have just one monthly student loan payment. Once you consolidate your Direct loans, you are out of default and will stay out of default so long as you continue to make payments.
Disadvantage of Consolidation
Consolidation does not remove the default from your credit report.
Which Option Is Right For Me?
There is one right option for you and what that option might be depends on your unique personal circumstances.
You can get student loan relief today by