Defaulted Loans Affecting Future Aid
Dear Betsy,
I feel trapped and desperately need your help. I have student loans that are in default. Last year, before it went into default, I called and was told I had to wait for it to default before I could do anything. That didn’t make sense. They also told me that I couldn’t file for financial aid until this debt was paid. Anyway I had just been laid off from my job and agreed to make tiny payments out of my unemployment check. In addition my tax return check was taken.
This was fine for me because I wanted to go back to school when my loans were paid up. Right now I have less than $1000.00 left to pay. However I am still unemployed, receiving AFDC, and a single parent. I’ve been unable to make payments in months. Is there anyway I could file for financial aid without paying money back now? Getting an education is very important to my life and acquiring employment. I am tired of having doors shut in my face and not having the money to do anything about it. Please help!
Thank You,
Michelle
Dear Michelle:
I’m sorry to hear about your situation. You can become eligible again for financial aid without paying the entire balance off—but you will have to pay something. If you make 6 consecutive, voluntary, exactly on time, monthly payments in an amount agreed to by your guaranty agency, you will again become eligible for further financial aid.
They usually ask for at least $50 per month, but, if that’s too much, you may be able to file for hardship to have the amount lowered. Once you become eligible for aid again—and this is important—you MUST continue to make those payments on time or you will lose it again. The good news is that after either 9 or 12 months (depending on whom your loans are with) the loans will be what’s called “rehabilitated” and out of default. Once that happens you can put them on hold while you’re in school if you need to.
To get this started, tell your loan holder you want to enroll in rehabilitation and start discussing monthly payment amounts. They’ll let you know what documentation, if any, you’ll need to send them to verify your financial situation to lower the amounts. They’ll likely also send you some paperwork to sign agreeing to the terms of the rehabilitation. Make sure to tell them you’ll need the eligibility letter for financial aid after you’ve made the 6th payment. By the way, an added benefit to the rehabilitation is that the guaranty agency removes the default line from your credit report!! Please let me know if you have further questions.
Best of luck,
Betsy
