Defaulting on a student loan can seriously damage your credit. Credit bureaus don’t care why you couldn’t pay; they just tell anybody who checks up on you, that you didn’t. Now that you have a negative history associated with your student loan it is time to fix it, and you need to do so fast.
When banks or other lenders look at your credit report they may be hesitant to work with you because of your default status. It can affect your chances of getting a home, a car, renting a nice place, and even your career. More and more employers are checking credit reports to see how reliable a potential hire is. A default on your credit report will hurt you.
Some people think that their debt is too high and the only choice is to file bankruptcy. The problem is that you cannot file bankruptcy on a government loan. So bankruptcy might help you get rid of other debt, you are still stuck with your student loans, and your default status.
The good news is that it is not too late. After your loan defaults you should contact the loan holder and talk about your options. The government does have a loan rehab program aimed at people in default status. The program rules are set in stone and other then paying off your student loan completely, this is the only way to get yourself out of default status.
The loan rehabilitation program works as follows:
1. You must begin making payments on your student loan.
An agent will calculate the payment they need each month in order for you to get out of default. As a general rule this amount is 1% of your total student loan balance. For example, if you owe $17,000 your payment would be around $170. This is still a significant amount of money for people already facing financial hardship.
2. You must make your payments on time for 9 months.
Rehabilitation last for 9 months. At the end of that period, if you have made all your payments on time, your loan will be returned to good standing and will clear off your credit report. The credit report will also reflect a positive history with the loan company.
3. At the end of the program you will begin making normal payments on the loan.
The payments will not end after rehab. You will continue to make payments, but may possibly be able to adjust the amount of your payment. At this point you will be able to defer your loan.
4. With your loan in good standing you can resume school.
A loan in good standing will allow you to return to college and you will be eligible for additional loans. You will also be able to stop any garnishments or tax offsets from the default status of your loan.
As you can see there is an out to student loan defaults, however it is much easier to never get into default status in the first place. If you are having problems paying your student loan call the provider and ask for options.