Tag Archives: deferment
School Loan Deferments and Forbearance
Student loans are designed to be quite easy to pay off, but there are times when students simply can’t make the payments. Because student loans and school loan consolidation can make the balance of your loan add up, there may come a time when you have trouble meeting your required payment. In this case, it is important to take steps to protect your personal credit in order to build a financial future in the long term. It is never good to default on a loan, and it is even worse to default on a federally funded student loan.
When you can’t make your payments and student loan consolidation isn’t an option, you might want to consider a last resort. Gaining a deferment on your student loan is an excellent way to get a break. Many people have trouble paying back loans of all kinds, so lenders have developed this option to help. They are just as eager to get their money back as you are to pay it, so they will work with you in order to find a solution that works for everyone.
And important thing to remember about school loan deferments is that you can not apply for this type of help after you’ve already defaulted. If you feel like the burden of the student loan is going to be too much to bear, talk to your creditors before it gets to that point. Once you go into default, your credit will be ruined and there will be no deferment option to bail you out.
Deferments will allow you to put off the payments until a later time. Obviously, this will not eliminate your debt, but it will give you some room to breathe. There are fees and charges associated with putting off the repayment of a loan, but it is better to pay these fees than to have a large student loan go into default.
Before you get to the point where deferment is necessary, consider calling up a student loan consolidation company. If you have private lenders for the student loan, they can sometimes work with your lenders in order to lower the rates that you pay. In some cases, they can even help to develop a repayment plan to keep you out of default. This is an option that works for lots of folks.
If you aren’t comfortable with school loan consolidation, then forbearance is another option to strongly consider. As with deferment, this isn’t the most pleasant outcome to the problem, but it beats the alternative of defaulting on the loan. Like deferment, forbearance must be applied for specifically. Some cases will be granted and some will not. It all depends upon your lender and your circumstances. During forbearance, you payments are temporarily suspended or reduced for a certain period of time. This is usually more of a short term fix when deferment or student loan consolidation is not an option.
School loan forbearance and deferment is a good way to keep yourself out of financial trouble. Defaulting on a loan can be financial death, so any way around that is a good thing.
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Useful Information About Student Loan Default
Some graduates fail to repay because adequate employment isn’t found after leaving school and causes student loan default. Others may have different financial circumstances that could hinder repayment, but there are naïve students who just ignore their obligation and do not fully understand the consequences of default.
DEFERMENT BEFORE DEFAULT
Before defaulting on a loan, deferment, also referred to as “economic hardship” is an option. Loan deferment is postponement of repayment. A borrower must request deferment from the lending institution that issued the loan.
Economic Hardship is only one of several kids on loan deferment, and it is available in one year increments if the student is able to prove through documentation that he or she has had a previous hardship deferment, is on federal or state assistance, or is in the Peace Corps.
If a borrower is attending school, is unemployed, or is in the military then he or she can also qualify for other types of deferment. This is a way to remain in good standing with your loan institution.
DELINQUENCY
Loans go into delinquency when students fail to send in payments on time and this can result in default, but delinquency is a kind of warning. For every one student that defaults, a minimum of two will enter delinquency. Delinquent loans are far more common than defaulted ones. They are not as serious as defaults; to but can nevertheless, result in future ramifications like the inability to obtain mortgage credit.
There are various repayment options available to borrowers, however most do not search for help until delinquency or default has already occurred. Contacting the lender before these issues arise is the best solution to avoid the consequences that come along with failure to repay borrowed funds.
The lenders will send notices by email or traditional mail throughout the period of nonpayment before default occurs, as well as when the loan is declared to be defaulted.
ABOUT STUDENT LOAN DEFAULT
A borrower is required to repay all loans, regardless of whether that person graduated from college or not. When obtaining a student loan, the borrower is required to sign a promissory note, which binds him or her to the terms of the loan agreement and by signing it, the student agrees to repay the funds in full.
Many students want to repay their obligations, but may be finding it difficult obtaining adequate employment after graduation, and this would be the best time to defer the loan, before default sets in.
Once the loan has defaulted, a person can begin enduring serious consequences. Most student loan defaults take place when the borrower withdraws from the college or university and ceases to return and work toward fulfillment of a degree.
Student loans are not able to be discharged through bankruptcy in most cases. After defaulting on your loan, there is the option of making a hardship petition. These hardship petitions have requirements that can be very difficult to fulfill. To meet hardship requirements, a student must be able to show that he or she has made a good faith effort to repay the loan, but if it has already defaulted then this can be hard to prove considering student loan defaults occur after almost one full year of nonpayment.
A person pursing a hardship petition must show that he or she will not be able to meet even the lowest standard of living and still be able to make lowest acceptable payments toward the debt. The person must be able to show that this circumstance will likely be upon him or her for the remainder of the loan repayment period. This could be the hardest evidence to prove, with the exception of persons who have had injuries or serious medical problems, or are homeless. If you are able to satisfy the conditions of the hardship petition, most times only a portion of the loan debt is forgiven.
WHAT HAPPENS AFTER DEFAULT?
Once your loan has been declared to be in default, you are no longer able to defer it and you are no longer eligible to get any further financial aid until the full amount has been repaid. Once default sets in, the repayment period agreed upon in the original promissory note is then forfeited. The full amount is then due back to the lender.
The lending institution will turn over your case to a collection agency and you may then be responsible for any collection costs tacked onto your loan by the collectors. The debt can significantly grow due to collection costs.
If you are employed, an Administrative Wage Garnishment can be placed on you pay, and the employer will then send 15% of your wages toward repayment of the loan.
Your federal or state tax refund or both may be offset by the Department of Treasury. If this happens, you may not be immediately notified until after you have filed your taxes and are waiting for the refund. You may, then, receive a letter informing you of the allocation of the refund or refunds to satisfy your outstanding student loan debt.
Legal action can be taken against you and your credit suffer will definitely suffer tremendously. Persons with defaulted student loans do not qualify for HUD or VA loans and will not be accepted to work for the Federal Bureau of Investigation.
WHAT CAN I DO TO PAY MY DEFAULTED LOAN?
The U.S. Department of Education’s guaranty agencies are all required to accept reasonable and regular monthly payments that are affordable to you. After six full moths of regular repayment, a student may be able to return to school with financial assistance.
The FFEL loan consolidation program or the William D. Ford Direct Loan Program is two programs that help with repayment of defaulted loans, and there is also a loan rehabilitation program for help with repaying your loans.