Living Frugal
Defaulting on Student Debt

If you have student debt, do your best not to default on your loan because Uncle Sam has no mercy.

These days, you graduate from college and are finding it difficult to keep up with the payments on your student loans. It's tough to find a job and federal or private student loans are impossible to discharge in bankruptcy court.

If you default on a federal loan, Uncle Sam will quickly make your life difficult to say the least. How long does it take before the loan is considered in default? Typically federal loans go from delinquent to default after about nine months of no payments.

When you're trying to decide whether or not to default on your debt, take the following ramifications into consideration when making your decision. I know times are tough but you want to default on all other debts before you consider defaulting on a federal loan.

  • Your wages can be garnished without a court order and they can take a total of 15% disposable pay right out of the gate. That's quite a large sum of money if you're already struggling to make ends meet anyway.
  • Although the garnishment can be done without a court order, you do have the ability to challenge the garnishment. You'll be notified prior to the garnishment effective date. If you take action immediately, the garnishment can be stopped - but they can't be stopped in all stages. It is imperative to request a hearing to appeal the garnishment before the garnishment period begins. If this isn't possible, you can still challenge it after the garnishment process has begun.

  • The government can also deduct money from your social security benefits or disability checks. If you get an income tax refund, they can (and probably will) take your refund to apply to your loan.

  • Once you've defaulted on your student debt, the entire amount is due in full. Huge penalties are added to the original amount of the loan and depending upon how much you owe, can be as much as $50,000.

  • Obviously, Uncle Sam is not so forgiving on defaulted loans and will sue you. There is also no statute of limitations, they can sue you decades after the fact.

  • If you default on your federal loan, do not ignore the letters notifying you that you are delinquent. Get in touch with the loan service and ask what your options are.

  • When talking with the lender, take note of the date, time and representative you talked with. Send a follow up letter via certified mail noting the conversation with the representative from the lender and keep a copy for your records.

To see who might be servicing your loan, the list can be obtained at the Department of Education website.

I've Already Defaulted on My Student Loan

If you've already defaulted on your student debt, you are finding out the government is relentless in their efforts to collect the loan. Stopping them is no easy task.

There are several options you may consider:

  • Student loan debt reduction
  • Student loan debt counseling
  • Student loan debt relief program
  • Debt Forgiveness for Student loans
  • Private student loan debt consolidation

Student loan debt forgiveness

If you were to pass away or become disabled, you will be eligible to have your debt forgiven.
Also, if you enlist in a branch of the Armed Forces, the Department of Defense will pick up some of the debt obligation when you enlist.

The following loans can be canceled for one of the above

  • Guaranteed Student Loans
  • Project Literacy U.S. Loans
  • Supplemental Loans for Students

If you have a National Direct Student Loan, it can also be forgiven for the above reasons or:

  • A portion of the loan may be canceled each year if you are employed in a Head Start Program. If you are employed in a Head Start Program for 7 years, your student debt is canceled.
  • If you were to be a full time teacher for handicapped children, a portion of your student debt is canceled. If you remain in this position or teach in a low-income district for 5 years, your student debt is totally forgiven.
  • If you have a loan for a certain Health Profession, a portion of the loan could be canceled based on conditions stated in your contract.
  • If you join the Peace Corps, 70% of your student debt will be forgiven.

Good Luck and Stay on Top of a Student Debt that you've defaulted on. It's well worth the effort to try for some student loan debt relief.

Click here for more information and the forms you need at the Department of Education Website

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