What Happens if you Default on a Federal Student Loan?
To default means you failed to make your payments on your student loan as scheduled according to the terms of your promissory note, the binding legal document you signed at the time you took out your loan.
Defaulting on student loans is a serious matter that deserves a lot of consideration. Before you begin applying for student loans, it’s wise to learn more about the consequences of default, how to avoid it and, if you're already in default, how to get out of it. See also Trouble Repaying Debt or how to settle defaulted federal student loans for less than what you owe.
You are responsible for repaying your student loans even if you do not graduate, have trouble finding a job after graduation, or just didn't like your school. If you do not make any payments on your federal student loans for 270-360 days and do not make special arrangements with your lender to get a deferment or forbearance, your loans will be in default.
Note that student loans are now generally not dischargeable through bankruptcy. It is fairly difficult to satisfy the requirements for an undue hardship petition. Even if you satisfy the requirements of an undue hardship discharge, often this will result in just a partial discharge of the debt.
Two options available for postponing repayment of your student loans are deferments and forbearances. If you are thinking about defaulting on your student loans, ask the lender whether you are eligible for a deferment or forbearance before you default.
If I don’t make my loan payments, when is my loan considered to be in default?
Default occurs when you fail to make a payment for 270 days.
Tax Refund Offsets
Your Federal Benefits Taken
Wage Garnishmet
The IRS can intercept any income tax refund you may be entitled to until your student loans are paid in full. This is one of the most popular methods of collecting on defaulted loans, and the Department of Education annually collects hundreds of millions of dollars this way. In some cases, you can challenge a tax refund offset.
The government can take some federal benefit payments (including Social Security retirement benefits and Social Security disability benefits, but not Supplemental Security Income) as reimbursement for student loans.
The government cannot take any amount that would leave you with benefits less than $9,000 per year or $750 per month. And, it cannot take more than 15% of your total benefit.
For example, if Doug receives monthly federal benefits in the amount of $900, the government may take either $150 (the amount of Doug's $900 benefit that is over $750) or $135 (15% of Doug's total benefit of $900), whichever is less. So, in this case, the government can take only $135 each month.
After a Federal student loan has been in default for 270 consecutive days, the government has the ability to collaborate with the Department of Labor to begin the garnishment of wages. Student loan wage garnishment is a way for institutions to collect on Federal loans by acquiring a percentage of the borrower’s paycheck and then directly transferring the amount to the lender. Remove Default Status in 4 Weeks! What We Can Do:
Here at Student Loan Consultants of America we are able to get your student loans out of default within 4-6 weeks through several government programs you may qualify for, this will allow you to file your taxes and receive a monthly payment that can go as low as $5. This will clear up your credit report and you will then be able to qualify for additional finical aid please give us a call.