Your Borrowing Responsibilities to Evade Defaulting on Student Loans

Failure to pay off your loan or mortgage could mean damaging your credit rating, lenders' and brokers' lack of interest in your loan application. And if yours is a student loan then it could cost a cut on your wages, difficulty in getting tax deduction, etc. Out of a number of loan and mortgage instruments available in the market, student loans have become an undeniable fact of life for a growing number of American students. Here, we will enlighten you with some valuable information to make the best choice for you in regards to getting a student loan.

Of various loan programs, the largest are the Subsidized Federal Stafford Loans and the Unsubsidized Federal Stafford Loans. For both subsidized and unsubsidized loans, students need not make any payments on the principle or the interest pending six months after you graduate, leave school, or drop to less than half-time. Assuming you received a maximum loan every year and you attend school for four years, if you don't start repayment until six months after you graduate, the Government has paid as much as $5,200 to the bank to cover your interest charges. With a subsidized loan, you could save up to $5,200 (e.g. the total interest charge). 

In case of default on payment of your federal student loan, the holder of the loan will ask the guaranty agency to purchase the loan after 270 days (roughly nine months). In turn, the guaranty agency will procure the loan and begin collecting the loan. On a defaulted student loan, repayment is accelerated; meaning immediately your entire balance (principal and interest) is due in full. 

In general, if you fall short to repay the loan amount during stipulated timeframe, it is capitalized (added to the principal balance of the loan(s)) when the forbearance ends. So you must use the forbearance period to develop a budget which could help you in repaying your student loan payments. If you start remitting monthly interest payments during the forbearance period, you can avoid your interest being capitalized (added to your principal). You should use forbearance as a last solution to avoid default. 

Being in default could lead to delay in class registration, and holds on transcript requests and receipt of diplomas. These are the short-term effects of defaulting. However, the list of long-term effects is even larger and bigger. Your loan default will be reported to national credit bureaus, which can spoil your credit rating for a minimum of seven years. Poor credit will prevent you from further financial aid. 

Loan default affects your financial future and overall credit reputation. You will be barred for further financial aid. Your state and/or government income tax refunds may be seized to repay your loan(s). 

In case of your inability to pay off your loan, contact your lender/provider and make suitable arrangements to rectify the delinquent loan. Your lender/provider evaluates your situation and helps you find the best option for repayment. Possibly, you could qualify for deferment or forbearance of the loan. Additionally, if you make 12 regular payments, you can qualify for rehabilitation, which will pull you out from default category. 

A student loan can help you realize your dreams, but its default can be a nightmarish experience. Deal with it immediately to avoid penalties on default.