Douglas Olsen
Delinquent student loans can be a source of immense stress, but there are several options available to borrowers to help resolve this issue. Student loan delinquency occurs when a payment is missed, and it can lead to serious financial consequences if left unaddressed. To prevent default, it is crucial to take prompt action and contact the loan servicer to explore options such as deferment, forbearance, or alternative repayment plans. Understanding the specific circumstances and future financial goals is essential to determine the most suitable strategy for resolving delinquency and maintaining loan currency. This introduction aims to provide an overview of the topic, highlighting the importance of addressing delinquent student loans and the available options for borrowers to get back on track with their repayments.
| Characteristics | Values |
|---|---|
| What is delinquency? | Loans are considered delinquent as soon as a payment is missed. |
| How to prevent default? | Contact your loan servicer immediately. |
| What to do if less than 270 days past due? | Pay the past due amount and continue on your current repayment plan. If unable to do so, consider a deferment or forbearance. |
| What is a deferment? | A temporary postponement of payments for a specific reason outlined in federal law. |
| What is forbearance? | A temporary pause in loan payments, with the interest owed continuing to accrue. |
| What to do if more than 270 days past due? | Contact your loan holder and request a 120-day forbearance over the phone. |
| What happens after 270 days of missed payments? | Student loan default usually occurs. |
| How to get federal loans out of default? | Options include loan rehabilitation, consolidation, and income-driven repayment plans. |
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What You'll Learn
Contact your loan servicer
Contacting your loan servicer is a crucial step in addressing delinquent student loans. Here are some detailed instructions and considerations to guide you through this process:
Understanding the Importance of Timely Contact:
Reach out to your loan servicer as soon as you realise you are struggling to make payments. The sooner you initiate contact, the more options may be available to you. Delinquency can lead to default if left unaddressed, and default has serious financial consequences. These consequences can include a negative impact on your credit rating, making it difficult to secure loans or credit cards, and even resulting in withheld tax refunds and wage garnishment.
Exploring Postponement Options:
When you contact your loan servicer, enquire about postponement options such as deferment or forbearance. Deferment is a temporary postponement of payments for specific reasons outlined in federal law. If you meet certain criteria, such as unemployment or economic hardship, you may be eligible for a deferment. During a deferment, if you have subsidised Stafford loans, the government typically pays the interest, which can provide significant relief.
Applying for Forbearance:
Forbearance is another option to discuss with your loan servicer. It allows for a temporary pause or reduction in payments, but interest continues to accrue. While forbearance provides some breathing room, it's important to remember that it doesn't resolve the underlying issue. You can often request a forbearance over the phone, but be aware that repeated forbearance requests may require a formal application process.
Evaluating Repayment Plans:
Your loan servicer can also guide you through different repayment plans that may be available. These plans could include income-driven repayment options, which can make your payments more manageable relative to your income. Be cautious, as it can take time for your servicer to process your repayment plan application, and you remain responsible for any past-due amounts during this processing period.
Consolidation and Rehabilitation:
If your loan has already defaulted, your loan servicer can provide information on getting federal loans out of default through loan rehabilitation and consolidation. These processes can help you regain control of your financial situation and resolve the default status of your loan.
Remember, contacting your loan servicer is a critical first step in addressing delinquent student loans. They can provide you with specific guidance based on your circumstances and outline the options available to you. Don't hesitate to reach out and take advantage of the assistance they can offer.
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Apply for a deferment
If you are struggling to make your student loan payments, you may be able to apply for a deferment. A deferment allows you to temporarily pause your student loan payments. Depending on the type of loan you have, interest may also be paused while your loans are in deferment.
To apply for a deferment, you must request it through your loan servicer. You will need to complete a request form and submit it along with any documents that prove your eligibility for the deferment. You must continue to make payments until you have been notified that your deferment has been approved.
There are several reasons why you may be eligible for a deferment. These include:
- Unemployment
- Severe economic hardship
- Military service
- Enrolment in a rehabilitation training program for the disabled
- Enrolment in school at least half-time
If you have loans that were made prior to July 1, 1993, you may be eligible for other deferments. It is important to note that deferments can be applied retroactively on your account by up to one year, as long as the loan is not already in default.
If you are unable to obtain a deferment, there are other options available to help you resolve delinquency. These include forbearance, loan rehabilitation, and consolidation. Forbearance is a temporary postponement of payment due to financial hardship. It is granted at the loan holder's discretion and can provide some wiggle room to resolve past-due amounts. Loan rehabilitation and consolidation are options to get federal loans out of default.
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Request forbearance
If you are struggling to repay your student loans, you can request forbearance, which will allow you to temporarily pause or postpone your loan payments. Forbearance is typically granted in cases of financial hardship, and it is up to the loan holder's discretion to decide whether or not to grant it. However, most loan holders will allow forbearance for federal loans for a period of 24-36 months, in increments of up to 12 months at a time.
There are two types of student loan forbearance: general (or discretionary) forbearance and mandatory forbearance. General forbearance is granted at the loan servicer's discretion and is typically given when borrowers are temporarily unable to make payments due to financial difficulties. All federal loans, including Direct Loans, Federal Family Education Loans (FFEL), and Perkins Loans, are eligible for general forbearance. Perkins Loans have a maximum limit of three years for general forbearance, while other loan types have no maximum time limit.
Mandatory forbearance, on the other hand, is granted when borrowers meet specific eligibility requirements. For example, you may qualify for mandatory forbearance if you are eligible for partial repayment of your loans through the U.S. Department of Defense Student Loans Repayment Program or if you are a member of the National Guard who has been activated by a governor. Mandatory forbearance can also be granted for up to 12 months at a time, and borrowers can request another forbearance period if they still meet the eligibility requirements after the initial period expires.
To request forbearance, you will need to contact your loan holder or servicer. In some cases, you may be able to request a 120-day forbearance over the phone, which will give you some breathing room to resolve past-due amounts. However, keep in mind that forbearance does not resolve delinquency, and you will still need to find a way to pay off the past-due amounts. After the forbearance period ends, you may be able to request another forbearance, but this will typically require filling out and submitting a form.
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Loan rehabilitation
To initiate the loan rehabilitation process, you must contact your loan holder or servicer, who may be the Default Resolution Group or another company, depending on your loan type and how long it has been in default. You can log in to your studentaid.gov account to determine who your loan holder is. Once you have identified the correct point of contact, you will need to agree on a payment amount that is reasonable and affordable for you. Rehabilitation payments are typically expected to be around 15% of your discretionary income, but if this amount is not feasible, you can request an alternative payment plan based on your overall financial situation.
After finalizing the loan rehabilitation agreement, you will be expected to make nine consecutive payments to your loan holder. These payments are typically income-based, except for Perkins Loans, which require full standard payments. During this repayment period, you will still be responsible for any past-due amounts, and delinquency may continue to affect your credit score. However, once you make your final payment under the rehabilitation agreement, your loan will be removed from default. Any collections, such as wage garnishments and tax refund offsets, will cease, and you will resume regular repayment.
It is important to note that loan rehabilitation is a one-time opportunity. If you default on your student loans again, you will not be able to rehabilitate them a second time. Therefore, it is crucial to ensure that you can continue making payments after completing the rehabilitation process to avoid defaulting again.
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Consolidation
To consolidate defaulted student loans, you must meet one of two qualifications: make three full, on-time, consecutive monthly payments on the defaulted loan, or agree to enroll in an income-driven repayment (IDR) plan. If you consolidate by making three full payments, you can sign up for any repayment plan you are eligible for, including IDR plans. Under an IDR plan, your payments are based on your income and family size and could be as low as $0 per month.
To consolidate federal student loans, you can apply online through the Department of Education's website. To consolidate private student loans, go directly to a private lender.
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Frequently asked questions
A student loan is considered delinquent as soon as you miss a payment. However, your servicer won’t report these late payments to credit bureaus until 90 days have passed.
Contact your loan servicer immediately. Delinquent federal student loans are eligible for postponements and repayment plans that could make payments more affordable, such as income-driven repayment, deferment, and forbearance.
Deferments are a temporary postponement of payments for a specific reason outlined in federal law. If you have subsidized Stafford loans, the interest, in most cases, is paid by the government while you are in deferment.
Forbearance is a temporary postponement or reduction of payments. The interest you owe continues to accrue. Forbearance is given at the loan holder’s discretion but most will allow between 24-36 months for federal loans, in increments of up to 12 months.
