What Does It Mean When You Have A Student Loan Default?

Posted on January 12, 2009
Filed Under Defaulted Student Loans |

If you are a student who decided to borrow money from a lender, you have made a commitment to pay that lender back. A student loan works just like any other type of loan.  It’s not your money.  You only have the right to use it for a specified length of time.  Your student loan is the temporary use of a form of financial aid that must be repaid.  If you do not pay it back you have a student loan default.

A Student Loan Default can be defined as - defaults made by the borrower to the creditor of the loan through the breach of the terms and conditions of the student loan contract.  If you are a student who has not fulfilled your obligation to make regular payments on your student loan debt, then you have fallen into the dreaded debt trap.  By walking away from your debt, a series of consequences begins to develop.

Initially the lender will try and contact you repeatedly for a few months, between 90 and 120 days, to fulfill your payment obligations.  This will either happen after you have separated from college or other school, or if you drop your course load to under half-time enrollment.  If the creditor is unable to reach you in this time or if you continue to ignore your financial responsibilities, your student loan debts remain delinquent for 270 days or it becomes 270 days past due at any time.  This leads to the loans into “default” status.

The declaration of a student loan default happens after this delinquency period.  Title 4 of the Higher Education Act authorizes lenders to exhaustively use all efforts to find and contact you, the borrower and debtor, to make payment.

If the lender’s efforts in locating you are unsuccessful, your student loan will then be placed in default.  At this stage the loan will be turned over either to the Department of Education or to a state guaranty agency.

Also, the maturity date becomes accelerated once the loan enters the default stage.  When this happens, the full amount of the student loan becomes due right away.

It may be possible to prevent default if you can show evidence that your student loan should not be in default status.  If you had a National Direct Student Loan/Perkins Loan, you can contact your school for guidance.  If it was a Federal Family Education Loan, contact the guaranty agency responsible for paying the insurance claim on your loan, and plead your case with them.

We will get into Student Loan Defaults a little more in other articles.

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