Managing Student Loans

Defaults are rising on student loans although there are ways to try to avoid this scenario by contacting lenders early if a problem is foreseen in making payments. It is important for those who graduate with both federal and private student loans to understand that the default situation is different on the two types of loans yet both share the same non dischargeable factor which means that even personal bankruptcy excludes student loans.

Non payment of both federal and private student loans results in the loans being in default, yet private loans are in default at 120 days, whilst the time frame for federal loans is 170 days. The federal government has powers to take action to recover the defaulted debt without resorting to court action, whilst private lenders have to recourse to suing you in the civil courts to obtain a judgement to recover the debt though wage garnishment. Federal loans can be recovered by the IRS or through social security benefits as well as through wage garnishment.

Private student loans are treated as any other unsecured loans which are in default and in addition to wage garnishment, which involves your employer forwarding a portion of your salary directly to the creditor or their agent; liens may be obtained against your property of financial accounts. Each state has its own statute of limitations on how long a creditor may pursue the defaulted loan but creditors can in most cases renew judgments and pursue the debt indefinitely.

Of course the major difference with private student loan default and federal student loan default is that often the former has a third party co-signer who is equally liable for the unpaid debt, and can also be chased by collection agencies or sued. It is doubly important that those who are in difficulties making repayment on private student loans which have a co-signer make the guarantor aware of any difficulties, as default will have a negative effect on that person’s credit rating too.

Any defaulted loan will impact on your credit score and can make it difficult to obtain borrowing in the future on auto loans, personal loans, credit cards and mortgages. Those who do default on student loans may well have to use the services of a pay day loan lender for any future necessary borrowing as the default will register on credit reports for seven years.

It is imperative that if you experience difficulties making the monthly payments on your student loans that assistance is asked from your creditor. It is possible to get either forbearance or deferment on federal student loans, whilst forbearance is also a possibility with private student loans, though sometimes there are high fees attached to private student loan forbearance. As an example it is possible to cease payments for three months on a Sallie Mae student loan but the fee for this is $50 and the interest still accrues. However Wells Fargo imposes no fee for granting forbearance.

The important thing is to speak to your creditor’s way before the loans reach the stage of going into default so that all measures to avoid it can be examined. If you try to ignore the situation it won’t get better and will end up much worse, with far reaching consequences.