CAC Students Graduating

Avoiding Default

Understanding Default

The first day after you miss a student loan payment, your loan becomes past due, or delinquent. Your loan account remains delinquent until you repay the past due amount.

If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the three major national credit bureaus. If you continue to be delinquent, your loan is at risk of going into default.  After at least 270 days and no scheduled loan payments have been made,  you will be considered to be in default.

But always remember even if you are delinquent on your loan, you may still be able to avoid default, so it’s important that you contact your loan servicer immediately.

To find out who your loan servicer is, visit the Federal Student Aid website and log in using your FSA ID and password.

NEVER ignore delinquency or default notices from your loan servicer—defaulting on your loan can have serious consequences.

Consequences of Default

You are responsible for repaying your student loans even if you did not complete your program of study or had trouble finding a job after graduation, or even if you are not satisfied with your education. You cannot disregard your federal student loan obligation. Otherwise you risk going into default.

Defaulting on your student loans has serious consequences, such as :

  * The entire balance of your loan becomes immediately due, called acceleration.

  * You can no longer receive deferment or forbearance, or the ability to choose a repayment plan.

  * You lose eligibility to receive federal financial aid until your defaulted loan is satisfied.

  * Your defaulted loans will appear on your credit record. A bad credit score can affect your ability to purchase a car, home and credits cards.  It may also affect your ability to get hired at a job

  * Your federal tax refunds may be withheld and applied towards your defaulted loan.

  * Your wages may be garnished and applied towards your defaulted loan.

  * Your loans may be turned over to a collection agency  in which you will  incur additional costs.

Preventing Default

You must take the time to fully understand your loan agreement and the types of loans you are receiving. It’s important that you not borrow more than what you need or more than you expect to be able to repay. Develop a sound—and realistic—financial plan.

Here are some steps to take to help you prevent default :

  • * Make sure you understand your options and responsibilities before borrowing.
  • * Keep careful records regarding your loan. Put copies of all your letters, canceled checks, promissory notes, notices of disbursement and other forms in a file folder.
  • * Make your payments on time.
  • * Notify your loan servicer of any changes that may affect the repayment of your loan. For example, your home address, enrollment changes and/or graduation.
  • * If you are having trouble making your payments, your loan servicer may be able to suggest alternate repayment options.
  • * If you encounter extreme financial difficulties, consider applying for a deferment or forbearance on your loans.

The links below will provide more in depth information on preventing default:

Postponing Repayment

The two options available for postponing repayment of your student loans are deferments and forbearances. Stay in contact with your loan servicer, they will help you to determine if you are eligible for a deferment or forbearance BEFORE you default.

  • Deferments
    The lender allows you to postpone repaying the principal of your loan for a specific period of time, making your debt more affordable.
  • Forbearances
    During forbearance, the lender allows you to postpone or reduce your payments, but the interest charges continue to accrue.

Getting Out of Default

One way to get out of default is to repay the defaulted loan in full, but that’s not a practical option for most borrowers. The two main ways to get out of default are loan rehabilitation and loan consolidation. While loan rehabilitation takes several months to complete, you can quickly apply for loan consolidation. However, loan rehabilitation provides certain benefits that are not available through loan consolidation. Contact your loan servicer they can help guide you through this process.

The links below provide more detailed information on preventing default:

Need More Help?

If, at any time, you find you are having financial difficulties, do not hesitate to ask for help!  Call your student loan servicer or a Financial Aid Specialist !

We want you to have a successful financial future. Yolanda is available to help you if you have any questions before or after you contact your loan servicer.

Yolanda Talamantez
CAC Financial Aid Specialist
Phone: (520) 494-5006

or contact —

The U.S. Department of Education’s Federal Student Aid (FSA) Ombudsman Group is also a neutral, informal resource to help resolve disputes and solve other problems with federal student loans. The Ombudsman helps resolve problems related to student loans when other approaches have failed. Borrowers must first make every effort to resolve student loan problems before contacting the Ombudsman. Borrowers who have completed steps to resolving their loan dispute and are still not satisfied may contact the Ombudsman by either completing an online form or by calling 1-877-557-2575.