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How to Bring Overdue Accounts Current
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If you have a student loan that is in default, you're probably pretty concerned about how to get out of this jam. To begin with, let's clarify what it means to have a loan in default as opposed to having a loan that is merely delinquent, or past due.
When your student loan payment is due, you likely will receive a notice from your lender or servicer telling you what amount to pay and where to send the check. If you don't make a timely payment, that student loan is immediately considered delinquent. Your payment could be due on the 15th and if it's not made, by the 16th, technically your loan is delinquent, or past its due date.
Some time will go by, and your lender or servicer will again start sending you notices. Sometimes the letter will come from the school itself. It depends on the loan type and the holder of the promissory note. But under current law, a default occurs on your student loan any time you have not paid what was due for 270 days. In some cases, a loan default comes after 330 days of missed payments. Keep in mind that this 270 to 330 period comes after your six to nine month grace period, when you've graduated, left school, or dropped below half-time enrollment status.
So a defaulted student loan, unlike a merely delinquent loan, has really been overdue for quite some time.
How do you know whether the 270-day or the 330-day delinquency triggers a default? It depends on how you were supposed to repay your debt. If you have any type of Federal Family Education Loan (FFEL) loan that's been authorized under Section 435 (i) Title IV of the Higher Education Act, a default occurs on an FFEL loan after a delinquency has persisted for 270 days for a loan with monthly repayment terms. If your loan was supposed to be payable in installments less frequent than monthly, then the 330-day delinquency is what triggers a default. This applies to loans that first went delinquent on or after October 7, 1998.
If, after making numerous attempts to contact you and get you to pay up, the lender is unsuccessful, it will typically put the loan in default and turn it over to the guaranty agency in your state. When you are declared in default on your student loan, and the maturity date of that promissory note that you signed gets accelerated, you trigger a clause in your loan provision agreement that basically says all the money is due immediately. This includes the principal and interest due on the loan.
Obviously a default has very negative consequences for you. But you may not be aware of all the ramifications, so it's important that you know what could happen. One penalty of being in default is that you are no longer eligible for any type of deferment or forbearance, which are two key payment-postponement methods used by people unable to pay those loans. You lose eligibility for other federal loans backed by the Federal Housing Authority or the VA. You also have very harmful consequences with regard to your credit report. And once your loan is turned over to a state guaranty agency or the federal Department of Education for collection, legally, any of the following things can happen:
- You likely won't be able to get an academic transcript or records from your school.
- You won't be able to get any more student loans.
- Your federal tax refund check may be withheld to repay your loan.
- You may have to pay extra collection costs to a private collection agency—as much as 25 percent extra, on top of die principal and interest that you owe.
- Your wages can be garnished, requiring your employer to forward anywhere from 10 to 15 percent of your disposable pay to the Department of Education to pay off your student loan.
- The Department of Education can sue you or take other legal actions against you.
- Your default will be reported to the credit bureaus, severely damaging your credit score.
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Article Title : How to Bring Overdue Accounts Current |
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