What Does Default Really Mean?
Default is one of those words that gets thrown around so much in the financial sphere that the meaning is often lost. When you do an online search of “student loan default” the top results are all about how to get out of default instead of explaining what it means to default on student loans and how to avoid it. In 2016, over one million student loans went into default. This is an alarming statistic, but if people knew more about defaulting they might take the steps to prevent it from happening.
First, exactly what does it mean to default on student loans? A simple answer is being late on paying your loan payments, but that doesn’t go far enough. When you are merely late on a payment, that is called delinquency. Default occurs when the borrower hasn’t made payments in 270 days, which is roughly 9 months. (Borrowers who have FFEL loans — Federal Family Education Loan Program — won’t default until 330 days, which is roughly 11 months.)
When you default on student loans, your entire loan balance becomes due and you lose the ability to apply for forbearance or deferment. These loans are then sent to a collection agency. This can severely affect your credit, but it affects you in other ways as well. The government will do everything they can to get that money from you, including garnishing your wages, tax returns, and Social Security earnings.
Recent legislation has shown that the current federal administration is more concerned with the lenders getting their money back than with the borrower’s inability to make their outrageous payments. With rollbacks on protections against extra fees when an account goes into default and consistent siding with lenders and debt collectors, it is clear borrowers won’t get any help from those handing out their loans.
It’s more important than ever to avoid defaulting on your federal student loans. One way to do that is to make a payment, even if it is late. Default only happens after 270 consecutive days of not making a payment (or 330 days for FFEL loans). However, if you ever get into default, the best thing to do is to look into default rehabilitation programs to resolve your issue.
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