Federal Student Loans in Default
We all have the best plans to pay debts. But during the course of long-term loans like student loans, things happen. A two-month period of unemployment stretches to twelve. Your tax refund is less than anticipated and can’t tide you over until your summer seasonal job. Or maybe you just thought your loans were still in deferment so you didn’t pay attention to the letters trying to advise that you have been missing payments. Is there anything that can be done?
Yes. Gratefully, there are great programs out there for federal student loans in default – meaning 270 days past due – and they are easy to request and generally easy on the budget.
If it has been more than 9 months since you paid on your loans, you may not know where to send payments or who to call. Your loan servicer may have hired a collection agency to contact you and receive payments on their behalf. So finding the right contact is the first step.
I strongly recommend familiarizing yourself with National Student Loan Data Systems. You can log in online at www.nslds.ed.gov or give them a call at (800) 433-3243. They are the repository for all information you ever needed regarding your federal student loans, including the date you took them out, the interest rate, who is servicing the loans (who to pay), and the outstanding balance. It will also provide contact information for each loan. (Click on “Aid” on the top left, then on the blue number of the individual loan to pull up this information.) With this information in hand, you can call the various servicers to request repayment options.
When you call, they will likely take some basic income information to see if you qualify for an income-based repayment plan. For families with low income, I have seen rehabilitation plans as low as $5 a month. In general, here’s the breakdown of what to expect logistically with how the rehabilitation plan works:
- Based off the financial info from your call, the representative will put you on a repayment plan and schedule your first payment.
- The servicer will mail or email you the agreement that makes the payment plan official. Once you receive it, sign and return it along with proof of income as soon as possible but no longer than 30 days from the initial call.
- After four successive payments on the rehabilitation plan, you will be removed from the “offset” list, meaning they will remove the request to garnish if you had one.
- Once you have paid six successful payments, you may return to school and utilize federal loan funding again.
- If you make 9 payments on time over the course of 10 months, your loan will be processed to come out of default and return to their normal servicing department. This means you are generally allowed 1 missed or late payment but no more.
- Once this processing is complete, you will likely have to contact that new department to see about keeping on an income-based payment if you still need that type of plan. (It almost never is automatically transferred as such.)
And remember that rehabilitation is generally a one-time option. If you default on the rehabilitation plan or if the loans go back into default again, it is currently not an option to request a second one.
Do you need help understanding your defaulted loans or taking the next step? Apprisen is here to help. Contact us at 800-355-2227 to schedule an appointment today!