Attorney Carla M. HandyAs it happens there is a significant difference in being delinquent in repaying a student loan and being in default in the repayment of a student loan.  There is a further difference between delinquency and default for federally issued or guaranteed student loans and private student loans originating from commercial lenders, as well as for the methods of collection available between federal and private.  For most federally issued or guaranteed student loans, delinquency begins the day after the failure to make any timely monthly payment under your repayment plan.  If any regular monthly payment remains delinquent fifteen (15) days from the due date, collection activity by the student loan servicer begins.  Initially this collection activity will consist of notices of delinquency but will escalate the longer the loan remains delinquent.  For most federally issued or guaranteed student loans, if the delinquency persists for 270 days (or approximately 9 months), the loan will be declared in default and serious collection consequences will follow.

Defaulting on Federal Student Loans

The most significant consequence of a federal student loan being delinquent is the negative treatment on your credit report which can adversely affect your credit rating.  However, that pales in comparison to the most serious consequences of reaching default status with your federal student loan.  Once the student loan is declared in default, the loan holder will accelerate the note and the entire balance will then be due immediately.  As a result of this acceleration, the methods for collecting the amount owed on a federally issued or guaranteed student loan include administrative wage garnishment, interception of tax refunds and, most alarmingly, taking a portion of your social security benefits once you qualify for same.  An administrative wage garnishment does not require the student loan lender to first sue you and obtain a judgment through the court system.  “Administrative” simply means one day you show up for work just in time for your employer to tell you the student loan lender is taking 15% of your disposable wages from your paycheck.

Given how serious the methods of collection can be once a federally issued or guaranteed student loan is declared in default, it is critical that you immediately begin to explore all options available to resolve a delinquency as soon as it occurs.  The remedies can include deferring your payments for an extended period of time or qualifying for an income based repayment plan.  I will speak at a later time about the issues of delinquency and default with private student loans so stayed tuned.

Unlike filing for bankruptcy, applying for and receiving a plan for addressing student loan debt can be done without the help of an attorney.  However, the road to achieving this goal is still difficult to travel.  If you would like the assistance of an attorney to help you navigate this terrain, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.

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