Paying back a student loan can be a huge undertaking, and it's easy to become overwhelmed. In such cases, borrowers may default on their loans, putting their financial health at risk. Going into 2017, graduates should aim to resolve their student loan defaults to get back on track.
It is recorded as an official default if you have made no repayments on your federal student loan for 270 days or more. This period is likely to be less if you have a private student loan, so it's vital to contact your lender and check their default periods. Turning around any defaults is crucial to getting your finances in check and building up your credit score.
In general, federal student loans can be recovered from default in several ways, including rehabilitation, debt consolidation, or by paying the outstanding debt in full. Though it's unlikely that many people will be able to pay the full balance, especially for larger debts, it's important to start paying back money as soon as possible. This is because the government has a raft of powerful collection tools, including the ability to seize your tax refund, garnish money owed from your wages, or deduct money from your Social Security benefits to reduce the outstanding debt. Also, sixty days or more after your default date, the lender may add collection fees of 25 percent to your debt. If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.
To qualify for debt rehabilitation, you must make at least nine consecutive payments, which equal at least 15 percent of your disposable income. You can also look to consolidate your debt, which can be done after the completion of three consecutive payments. The remaining debt can then be moved into a direct loan program.
Timing is essential when it comes to repaying your student loans. By starting repayments within sixty days following your default date, you can avoid extra collection expenses.
Find out quickly at what rate you can refinance your student loan.
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