Are You in Default?

A federal student loan goes into default if the borrower has not made payments on their loan for 270 days (9 months) under federal law and oversight, while a private loan goes into default based on the terms of your individualized contract, without nearly as much oversight. The lender is required to conduct “due diligence” in attempting to contact you to collect payments (meaning repeatedly try to contact you about the need to make current payments). If your lender does not conduct this “due diligence” it may be possible to discharge part or all of your loan, depending on whether they have a valid excuse for their failure. An extended failure is hardly excusable, however, and borrowers who slip in the virtual cracks of debt collectors should be able to contest a default on their account without proper notification of their need to pay. Though it should be an option personally, an attorney may help in demanding proof of any due diligence performed.

If you believe you are in default, contact your lender immediately to discuss payment options and determine if it is possible for you to avoid defaulting on the loan. Sometimes borrowers go into default simply because they’ve moved and the bills and communication attempts have gone to their old address (with the borrower forgetting to update their information in the chaos of a significant life event) so make sure your first step is trying to resolve the situation fairly with your loan servicer.

Negotiation or Discharge

Sometimes getting an attorney to look at your situation can dramatically help when it comes to student loan debt. There are many avenues to obtain complete or partial discharge of your loans, including being in select professions (such as police officers, teachers, and speech pathologists), suffering a total and permanent disability, or for schools that went out of business while you were attending or that you left within 120 days of their closing.

Negotiating is another avenue available to resolve your loans before default, and having an attorney on your side can help reach a better resolution. Negotiating with your lender can get you on a fairer payment plan.

Rehabilitation

Rehabilitation is an option that may allow you to avoid defaulting on your loan by changing the terms to a “reasonable amount”. This reasonable amount is usually 15% but objecting to this amount due to hardship is possible, which could allow you to reduce your income by your necessary expenses during the rehabilitation period. This period lasts about 10 months and requires 9 payments within 20 days of your due dates, and can be helpful for those struggling with short term financial issues. This option is only available once per loan, but may be available again after consolidation, as that process creates a new loan altogether.

Consolidation

Consolidation is another process that has potential to lower your monthly payments to help you establish yourself, though this has the fallback of often adding additional charges to your overall balance. These additional charges usually go directly to collection agencies for their “service” of getting you to pay up, so other options should be evaluated despite a collector’s likely push for this recovery option. However, consolidation can help you manage multiple loans into a single payment each month, with the possible extension of the length of time you pay off your loan in exchange for more manageable monthly payments.