Have you defaulted on your student loans? For most federal student loans, your servicer will report your account as delinquent after 90 days of no payment, and you’ll be considered in default after you haven’t made payments for 270 days.
Defaulting on student loans can have serious consequences, affecting your credit score and staying on your credit report for seven years! It could become difficult to obtain credit cards, home or car loans, or other forms of consumer credit. You may also be charged a higher interest rate. You may have trouble signing up for utilities, getting homeowner’s or renter’s insurance, getting a cell phone plan, or getting approved to rent an apartment. Additionally, the government has the power to garnish wages directly from your paycheck and to withhold your tax refunds!!!
The only way to get out of student loan default is to pay your loan(s) in full (🥵), or choose one of two default-repair options.
Rehabilitation is available to federal student loan borrowers and requires you to make nine reduced monthly payments in a 10-month period, and as a result, the default notation will come off your credit report.
Note: You only get one chance to rehabilitate a defaulted federal student loan. If you default again, you won’t be eligible for another rehabilitation.
Student loan consolidation is when the government consolidates your defaulted loan(s) into one new direct consolidation loan. This option is faster than rehabilitation, but the default notation will still remain on your credit report for seven years.
Note: If the government is garnishing your wages and/or tax return(s), consolidation is not an option for you.
If you haven’t actually defaulted on your loans and you’re just late making payments and/or currently using student loan forbearance/deferment, you can cap your monthly student loan payments at an amount that is affordable to you. Income-driven repayment plans cap monthly payments at 10-20% of your income and some of these plans have great interest subsidies and interest caps! Read our blog about why now is the best time to enroll in an income-driven repayment plan!