Federal statistics reveal that 70 percent of today's graduating college seniors will carry financial debt into their professional lives. Having student debt is a reflection of increased college costs and is a fact of life. And student debt is not a problem until graduates find that they cannot afford to pay off their federal loans on the schedules they agreed to at the time they took them out. Students ink a promissory note when they assume loans, legally binding them to all parties involved in the agreement. Failure to pay on a student loan invites legal recourses from as many as four entities, including the college, the lender, the loan guarantor and the federal government. They all hire lawyers and bill collectors.
Student Loan Delinquency vs Default
The best way to avoid student loan delinquency or default is to make all loan payments on the dates prescribed in the loan agreement. At times, lenders or loan servicers will give borrowers overnight grace or a brief period to make up an overdue payment and get back on track. But legally, a student loan is considered to be delinquent within days of a missed payment. This is the moment with the greatest distinction between a delinquency vs default. It's time for the graduate to take immediate action to rectify the lapse by contacting the loan servicer on William D. Ford Federal Direct Loan Program or the Federal Family Education Loan (FFEL) Program loans or the school where they obtained their Federal Perkins Loan.
Within 15 days of delinquency, the loan servicer will send a formal notice to the debtor. This is the time to discuss a repayment strategy, since the loan remains in delinquency until the amount is paid in full. Some lenders at this juncture may be flexible in re-arranging due dates to allow borrowers to get back in the black. You may get a forbearance. One or two of delinquency notices and the graduate will see a hit on their credit score as well as a potential loss of rate point benefits. But a quickly attended and remedied delinquency is not necessarily a show stopper. A default is.
Above All, Avoid Defaulting
If your student loan has been delinquent for six to nine months and you've ignored the legal letters, you're already in the depths of credit disaster. When you default, it's not just the missing payments that are due: you owe the entire balance including interest immediately! The U.S. Department of Education warns that the borrower in default will deal directly with collection agencies. The Federal government can garnish your wages. All Federal and State tax refunds will be ploughed into the outstanding debt, and your credit rating will most likely circle the drain, eliminating all hope for credit towards renting or buying property, getting credit cards or vehicle loans.
Remember the distinctions: delinquency vs defaulting. Are you delinquent? Take immediate action to stave off a default. If you've defaulted, there may be other remedies. Research it all at the the Student Loan Center at LendingTree.