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Debt Management Tips - Avoid Defaulted Loans

Default occurs when you fail to meet the terms of the promissory note. By failing to make payments on your student loans (being late for 270 days), the lender or servicer can request immediate payment in full. There are several consequences that can occur due to being in default:

  • The lender or holder of your loan may declare the entire unpaid balance, including interest, immediately due and payable.
  • The lender or holder of your loan may assign the promissory note to a guaranty agency, at which time all amounts due will be payable to the guaranty agency.
  • You could be required to pay all charges and other costs (including reasonable attorney's fees) permitted by law for the collection of your loan.
  • The lender, holder, or guaranty agency may report the default to one or all three national, authorized credit-reporting agencies.
  • Wages may be subject to garnishment.
  • State and federal income tax refunds may be withheld.
  • The lender and/or government may take legal action against you.
  • The lender, holder, or guaranty agency may report default to your school.
  • You may be unable to receive assistance from federal student aid programs.

If you're late making a loan payment, your delinquency might be reported to the national credit bureaus. Instances of delinquency and default that are reported to national credit bureaus will remain on your credit report for a minimum of seven years. This may make it difficult for you to borrow money for a car or a home in the future.

In order to avoid going into default, here are some tips:

  • Make payments on time!
  • Do NOT ignore mail from your lender or servicer.
  • Report changes immediately - name (marriage and divorce), address, telephone number, and enrollment status.
  • Request deferments, forbearance, or other repayment options as needed.

If you have difficulty in making your loan payments before you become delinquent, contact your lender or loan servicer.

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