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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.
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