Getting Out of Default

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Student Loan Default

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a FFEL loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments or 330 days in the case of a loan repayable in less frequent installments. The change is effective for loans for which the first date of delinquency occurred on or after October 7, 1998. During the delinquency period, the lender must exercise "due diligence" in attempting to collect the loan; that is, the lender must make repeated efforts to locate and contact you about repayment. If the lender's efforts are unsuccessful, it will usually take steps to place the loan in default and turn the loan over to the guaranty agency in your state. Lenders may "accelerate" a defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.

Once your loan is assigned to a guaranty agency or the U.S. Department of Education for collection, the following steps may be taken to recover the outstanding balance due:

The U.S. Treasury may withhold your payments toward repayment of your loan.
You may have to pay additional collection costs after your loan is assigned to a private collection agency for collection.
Also, you may be subject to Administrative Wage Garnishment, whereby the Department will require your employer to forward 10% to 15% of your disposable pay toward repayment of your loan.
Federal employees face the possibility of having 15% of their disposable pay offset by the Department toward repayment of their loan through the Federal Employee Salary Offset Program.
The Department may take legal action to force the you to repay the loan.
Finally, credit bureaus may be notified, and your credit rating will suffer.

Once a loan is declared in default, you are no longer entitled to any deferments or forbearances. In addition, you may not receive any additional Title IV Federal student aid if you are in default on any Title IV student loan until you have made payments of an approved amount for at least six consecutive months. Please see Going Back to School for more information on this topic.