Being in default on your student debts might get you in hot water. While no one likes to default, it is possible if you do not repay your student loans on time.
To help previous learners avoid default, the federal government gives considerable borrower safeguards. Your educational loans will fall into default after 270 days of nonpayment.
The good news is that if you have a federal student loan, you have more options for resolving a defaulted loan.
Fresh Start Program
A new program for federal student loan borrowers. Offers a one-time chance to recover from default. Contact the Department of Education’s Default Resolution Group to enroll. Qualifying borrowers regain access to loan rehabilitation options.
They will also change the reporting from “in default” to “in repayment,” and you will be eligible for federal student loan repayment programs based on income plans.
Rehabilitation of Student Loans
Student loan borrowers have options for loan rehabilitation through Direct and FFEL loans. Under this program, you make nine affordable monthly payments voluntarily for ten consecutive months, due within 20 days.
Your loan servicer determines the payment amount based on factors such as discretionary income, gross income, and local poverty level. Typically, you’ll pay 15% of your annual discretionary income over 12 even monthly payments.
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Consolidation of Federal Student Loans
Consolidating federal student loans provides an alternative to escape student loan default. Through a Direct Consolidation Loan, you can replace multiple federal loans with a single one. This new loan allows you to enroll in an income-driven repayment plan tailored to your finances.
To consolidate a defaulted federal student loan, you must either agree to a new IDR plan or make three consecutive voluntary monthly payments. If you choose the payment option, you must make full and on-time payments for three months in a row.
Get the Loan Paid Off
Paying off the loan in full offers a way to remove loans from default and completely eliminate the debt. While options like breaking into a certificate of deposit or depleting an emergency fund exist, the earlier mentioned options are more realistic for most borrowers.
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Source: AOL