Of course, sometimes certain conditions can prevent you from being able to repay your student loans. Whether you received loans that were funded by the Federal Government or by various private organizations, student loan repayment can be expensive and difficult to achieve. In the event that you go into student loan default, you should know what options are available to you.
Student Loan Default Help
When you fail to make your monthly student loan payments, you are considered to have gone into default. This means that you have failed to comply with the initial agreement you signed after being approved for the loan. Although a defaulted student loan can lead to serious credit problems, there are ways you can recover from your default and rebuild your credit. The key, however, is to quickly enter into a recovery plan, thus preventing further credit damage.
By refinancing, consolidating, or entering into repayment plans with your lender, you can eventually repay the remainder of your student loans. Many factors will contribute to your decision of which method you choose. Such factors include how your loan was funded; default help for federal student loan default will differ from the help you receive if you go into private student loan default. If you received both loans, and defaulted on both, you will most likely have to join more than one repayment plan. The number of loans you default on also play a role. Finally, the size of your loans will play a significant part in your recovery plan.
Loan Refinancing
One debt recovery option you have is called loan refinancing. This is ideal if you have only defaulted on one or two loans. Also, federally funded student loans can not be refinanced by a private institution. For this reason, loan refinancing is ideal for those with none other than private student loan default.
When you refinance your loan, you are enlisting the services of another lending institution, different from the institution that originally financed your loan. This new lender will pay off your loan, along with whatever interest may have already accrued. The lender will then bill you for this service, and you will be required to pay the lender each month as compensation. Chances are, your interest rates will have increased. This is because your default status makes you more of a risk for the bank. Nevertheless, you may be able to extend the life of the loan, meaning your payments may indeed be lower than the payments prior to refinancing.
Loan Consolidation Programs
Loan consolidation can be done for either private or federally funded student loans. Also, it is ideal for those who have defaulted or are unable to repay several loans. When you consolidate your loans, you allow a bank or consolidation program to pay off your student loans, whatever the remaining balances may be. The new lender then bills you for this monthly. Although your default status may result in a higher interest rate, your payments will most likely be lower, for you will be assessed one fixed interest rate as opposed to several.
Repayment Plans
If you choose neither to refinance nor enter into a consolidation program, you may be able to enter into a repayment plan with your lender. Repayment plans include garnishing and tax return suspension. The latter is more common for loans that are federally funded.
Student loan refund garnishment occurs after a lawsuit. A private lender may file a suit against you as a result of your loan default. If you state that you are unable to pay, you may be required to consent to wage garnishing. This means that a certain amount will be deducted from your paycheck each month to compensate the lender.
If your paycheck is not garnished, you may be required to forfeit your tax refund. The government will suspend your income tax refund check until after all overdue charges have been compensated for. This usually occurs when a borrower’s income is insufficient to repay the loan.