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If you find yourself lost during student loan repayment, you’re probably considering every possible solution.
One of our users remembered being so confused by student loan lingo that they started asking, “Should I combine my loans? Should I make early payments? Can I default?”
There’s a problem with that last option: It shouldn’t be an option at all.
Why you don’t want to default on your student loans
Some student loan borrowers might think defaulting on their student loans can help them lower their balance or get assistance with repayment.
That assumption is a dangerous one when you consider the consequences of a default:
- You could immediately be on the hook for the loan’s full balance.
- The default will be reported to the major credit bureaus, sinking your credit score.
- A lender could attempt to garnish your wages via a court order.
- Your tax refund could be withheld and applied toward your defaulted loan.
- You could lose your driver’s license in some states.
Plus, defaulting doesn’t come with any benefits. And it doesn’t work as a reset button. It’ll only dig the hole deeper for you and your cosigner (if you have one).
Worst of all, a student loan default can trap you in a default cycle. Borrowers who default once often end up defaulting a second time, according to the Consumer Financial Protection Bureau (CFPB).
Consider better solutions than a student loan default
When you miss a single student loan payment, you’re classified as delinquent.
With private loans, that delinquency could immediately trigger a default. Make sure you understand your lender’s rules for student loan default.
With federal loans, on the other hand, you have more time to avoid a default. A default occurs only after you miss about nine monthly payments. In other words, you’d have to be delinquent for 270 days.
No matter your lender or loan servicer, there are far better Band-Aids for your repayment than letting delinquency lead into default. You can fight off default by using the following strategies:
- Come up with enough cash for one payment to either reset the clock on your delinquency or give you enough time to explore other solutions. There all sorts of ways to make money quickly for that payment.
- Talk to your lender or servicer about your situation. You might find that it’s willing to adjust your payment date or amount. The CFPB provides a template letter so you can address your lender in writing when you’ve had less success over the phone.
- Explore student loan deferment and forbearance. These options, available through all federal loan servicers and some private lenders, offer you the ability to pause your repayment for anywhere from a few months up to three years. You’ll have to provide documentation showing you’re eligible for the lender’s or servicer’s program.
- Put your federal loans on an income-driven repayment plan to lower your monthly payment to a more manageable amount. Just be aware that you’ll pay more interest as you stretch out your loan term.
- Review federal loan forgiveness programs, which could discharge some or all of your remaining debt after a set period of on-time payments. If you’re a Perkins Loan borrower, for example, your profession could qualify you for forgiveness over a five-year period.
You also might have heard about all the benefits of student loan refinancing. Unfortunately, you’ll only qualify to refinance your old loans with a new lender if you can improve your credit score and debt-to-income ratio.
That’s one more reason to avoid this mess: Refinancing your defaulted student loans is an unlikely scenario. That’s because defaulting severely damages your credit.
Avoid student loan default at all costs
If you thought of defaulting on your student loans as one possible course correction for your repayment, you’re not alone. The majority of borrowers have misconceptions that could lead to a default, according to our recent survey.
It’s OK if you don’t know the ins and outs of student loans. You might even have lingering questions about the best way to move forward with your repayment.
If so, we want to hear them so you don’t make the wrong decision. A default, for example, isn’t the right option for anyone, and it can be avoided.
If you’re ready to continue your education, check out our guide on student loan default.
If you have a student loan question you’ve been waiting for an answer to, contact our customer support team. Your question might end up in this column.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.53% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|