If you are having problems repaying your federal student loans, then you must take steps to avoid defaulting. After at least 270 days of nonpayment, the Department of Education could consider FFEL and Direct loans to be in default. You could face severe consequences after defaulting that include.
- Administrative wage garnishment: The Department of Education does not need a judgment to begin garnishing your wages. Once an administrative wage garnishment is issued, a percentage of your pay could be garnished.
- Fees: Once you default on your federal loans, your outstanding balance and interest immediately becomes due. Collection fees may also add to what you owe.
- Loss of eligibility to choose repayment options: Programs like REPAYE, which cap monthly payments to a percentage of your discretionary income, may be out of reach after defaulting.
- Lower credit score: Your servicer will report your defaulted loans to the credit bureaus, which will hurt your credit score.
- Loss of eligibility for financial aid: You may lose your eligibility for federal financial aid after defaulting. If you are still enrolled in school or plan to return and finish your degree, a student loan default might limit your financing options.
There are multiple ways you can prevent default if you have federal loans. If you are having difficulties making payments, you may be able to enroll in an income-driven repayment program (IBR or REPAYE). You may also be able to seek a temporary deferment. These options are only available if your loans are in good standing.
What if My Federal Student Loans are In Default?
If you have already defaulted, then you may be able to bring your loans back into good standing by applying for the Education Department’s loan rehabilitation program. You may also be able to apply for a Direct Consolidation Loan, which could also bring your loans out of default.
The best option for getting out of default depends on your situation. Some borrowers may have an easier time than others. You should speak with a professional about your situation to discover other possible options for debt relief. The Kansas City student loan attorneys at The Sader Law Firm can discuss options for managing your debts.