Student Loan Repayment
Repaying Your Student Loans
Student loans, unlike grants and work-study, are borrowed money that must be repaid, with interest, just like car loans and home mortgages. You cannot have these loans canceled because you didn't like the education you received, you didn't get a job in your field of study or because you are experiencing financial problems. Loans are legal obligations, so before you decide to take out a loan, you need to think about the amount you will need to repay over the years. The recipient of a student loan must recognize a loan is a debt incurred by the student, not the parents. The responsibility for understanding the conditions and regulations of the loan process, as well as the repayment schedules, rests with you, the student borrower. You can find out more about the terms of student loans at studentloans.gov.or from your servicer at NSLDS.gov for your federal loans or if you are borrowing a private loan, you need to discuss the terms with your individual lender.
Don't miss a payment! If you don't pay the full amount due on time or if you start missing payments-even one-your loan may be considered delinquent and late fees can be charged to you. If you are making late or partial payments, contact your loan servicer immediately for help. You may be able to change your repayment plan to one that allows for a longer repayment period or to one that is based on your income. Also, ask your loan servicer about your options for loan consolidation, deferment, or forbearance. NEVER ignore delinquency or default notices from your loan servicer. If you don't make your loan payments, you risk going into default. Defaulting on your loan has serious consequences. Your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government all can take action to recover the money you owe. Always contact your loan servicer. They are very nice people and will assist you in any way they can. There are times when your loan payment may be $0.
What are the consequences of default?
The consequences of default can be severe:
- The entire unpaid balance of your loan and any interest is immediately due and payable.
- You lose eligibility for deferment, forbearance, and repayment plans.
- You lose eligibility for additional federal student aid.
- Your loan account is assigned to a collection agency.
- The loan will be reported as delinquent to credit bureaus, damaging your credit rating. This will affect your ability to buy a car or house or to get a credit card.
- Your federal and state taxes may be withheld through a tax offset. This means that the Internal Revenue Service can take your federal and state tax refund to collect any of your defaulted student loan debt.
- Your student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney's fees, and any other costs associated with the collection process.
- Your employer (at the request of the federal government) can withhold money from your pay and send the money to the government. This process is called wage garnishment.
- The loan holder can take legal action against you, and you may not be able to purchase or sell assets such as real estate.
- Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset.
- It will take years to reestablish your credit and recover from default.