Defaulting on Your Loan

What Does It Mean to Default On Your Loan?

When a student loan has gone into default, it means that the borrower has failed to make payments on time. This does not mean missing one or two payments. This means that you have failed to make payments for 270 days consecutively.

Why do Student Loan Defaults Happen?

Student loan defaults happen for a variety of reasons. Usually misinformation or lack of money to repay their student loans. Sometimes borrowers move without sending new contact information to their lender or loan servicer so they never received repayment information. Some borrowers believe that if they didn't complete their degree, or if they can't find a job, they don't have to repay their student loans.

Regardless of your situation, student loans must be repaid or other arrangements must be made with your lender or loan servicer to prevent default.

Keep Your Lender In The Know

Whenever anything changes about your life that may affect your loan, make sure you notify your lender right away. For instance, if you’re moving, let them know your new address. Or if you have graduated college. Likewise, let your lender know if you have dropped out of school or plan on transferring to a different school. It is vitally important to let your lender know anything and everything that may affect your ability to repay your loan. It would be really unfortunate if you went into default because you didn't receive your bill!

Consider Deferment or a Forbearance

One way to avoid default is to apply for student loan deferment or forbearance. This helps to postpone your loan payments until you can afford to do so once again. However, you will need to plan a bit ahead. While you are still making payments, ask about deferment. I know it can be hard to foresee circumstances that could prevent you from making timely payments, but as soon as you know something will interfere, let your lender know. That way, they can do their best to help you come up with an alternative repayment plan.

Make Special Arrangements, If You Can

If deferment is not an option, or you can afford to make payments just not in the same amount as before, talk to your lender about different repayment options such as income sensitive repayment. These options make repaying your loans much easier, especially during a time of financial struggle. Again, so many people go into default because they didn't know they had any other option. However, if you knew you could lower your monthly payments, then wouldn't you do it to avoid default?

Consolidate Your Student Loans

Another way to avoid going into default is to consolidate your student loans. If you have taken out more than one loan over the course of your college career, you may be faced with many bills that are all due around the same time each month. By consolidating your loans, you make it so you only have one loan payment each month. You might even be able to extend the repayment time on your student loans making your monthly payments smaller. This is by far one of the best ways to beat defaulting if your payments were just too high before.

Consequences of Defaulting On Your Loan

You already know that defaulting on a loan is bad, but do you know how bad? Just look at some of the consequences:

  • A collection agency will take over your loans
  • Legal fees and late fees will be added to the loan amounts you owe
  • You could be sued
  • Your wages from working may be garnished
  • Your federal income tax returned may be kept to offset your student loan debt
  • Social Security benefits could be withheld.
  • Future federal loans are out of the question.
  • Deferments are no longer an option
  • It could prevent you from getting credit cards, auto loans a mortgage or even a job.

The experience of having a student loan should be a positive one. You get to pay back your debt, build your credit and make your first venture out into responsible adulthood. Going into default is not the way to do this. In fact, it may very well set you back for years because of it. Don’t let limited funds ruin your credit. There are alternatives to default, some of which might even improve your credit!

You can review the MCCCD administrative regulations governing Student Financial Assistance here.