Student Loan Default: Serious Consequences

If you are delinquent for more than 270 days, your loan may default.

Default carries serious consequences for student loan borrowers:

– Your loan becomes due in full, all at once
– Your credit will be severely damaged, and you may be denied credit cards, car loans, and even apartment leases
– The interest rate on existing loans and credit cards you have may rise
– You will not be eligible for federal or state financial aid, including Pell Grants
– You may lose a professional license
– You may be denied a job due to poor credit
– You will not be eligible for a deferment or forbearance

If you do not resolve your default promptly, there are even more penalties:

– Your Social Security payments or state or federal tax refund can be seized to pay the loan
– Up to 15% of your wages can be garnished
– You can be charged collection fees of as much as 25% of your outstanding balance

Defaulted Loan Rehabilitation Program

After completing loan rehabilitation:

– You regain eligibility for financial aid, allowing you to pursue your higher education goals
– Wage garnishment and seizure of tax refunds cease
– You regain eligibility to apply for any deferment or forbearance benefits not exhausted prior to default
– The entire outstanding balance of the defaulted loan is no longer due in full
– You will be given the same maximum repayment period you received when you initially took out the loan, minus 9 months (i.e., the 9 monthly payments you made to qualify for rehabilitation)

You can also consolidate your loan into the Direct Loan (DL) program after you have arranged for a Satisfactory Repayment Agreement. Contact ASA at 800.343.2120, option 1 for more information.

Please note: This will not remove the default from your credit report.

How the Defaulted Loan Rehabilitation Program Works

– You must make at least 9 qualifying, on-time monthly payments
– Each payment must be made within 20 days of the due date. If you fail to make payments, you must begin the repayment schedule all over again
– Once you have made the required payments, your guarantor will send a Rehabilitation Agreement, which you must sign and return. Once you receive an official reply, your loan is considered rehabilitated
– You continue to make payments until you receive notification to do otherwise
– After you have returned the completed agreement, the guarantor transfers the loan to a new lender and servicer. The loan is then out of default and back into repayment
– You then make on-time monthly payments to your new servicer—and get back on the road to successfully managing your education debt

Keep in mind: Rehabilitation is limited to one time per loan, so be sure to stay on track once you are out of default.

If you have defaulted on your loan, contact American Student Assistance^® (ASA) immediately.