Of all people to owe, the government shouldn’t be your first choice. You agreed to the loan when you accepted the money. Refusing to repay means serious consequences. Unlike other debt that can be forgiven through bankruptcy, student loans stick until they are repaid, canceled or forgiven. While student loan debt can be daunting, especially if you aren’t happy with it, it is important you stay in contact with your lender or loan servicer.
When Student Loans Become Due
Most student loans have a grace period -- a set amount of time where you are not required to repay your loan. The purpose of the grace period is to allow you enough time to transition from leaving school to being more financially stable. Direct subsidized and unsubsidized loans have a six-month grace period. Perkins loans have a nine-month grace period. For other loans, check with the loan servicer. You may not have to repay your loans yet. You can find a list of your student loans and lenders at the National Student Loan Data System on the Internet.
Financial Hardship Options
You may be able to temporarily not make any payments on your student loans, even if they are in repayment. The key is to work with your loan servicer to set up a deferment or forbearance. A deferment is similar to what you had when you were in college or during the grace period. Repayment of your loan is suspended. Some of the reasons you might qualify include that you have returned to school at least half time, are unemployed or underemployed, have economic hardship, are in the PeaceCorps, or are on active military duty. If you don’t qualify for a deferment, you may qualify for forbearance and have your monthly payments reduced or stopped for up to 12 months. You may qualify if you have financial hardship or are ill, but it is up to the discretion of the servicer. Some situations, such as providing specific qualified teaching services, are subject to a mandatory forbearance, but each qualifying situation has detailed eligibility requirements.
Defaulting on a Loan
If you refuse to repay your student loan and refuse to make arrangements for a deferment or forbearance, you are likely to be in default. This means you will owe the government the money and suffer the consequences. Defaulting will impact your credit score and ability to obtain new credit from private lenders, and it will make you ineligible for future federal student aid. Any tax refunds you're entitled to may be withheld by the Internal Revenue Service for payment on your loan, your income could be garnished, and your account will be assigned to a collection agency. You also lose the ability to qualify for deferment, forbearance or repayment plans.
Getting Out of Default
If your loan is already in default, you still have options. It is important you get it out of default. Check the National Student Loan Data System to find out who has your defaulted loan. Contact the loan servicer or collection agency. You can get out of default by repaying the loan. Ask about loan rehabilitation if you cannot pay the loan off; you may be able to make reasonable and affordable payments that are agreed upon for a set time until the loan is purchased by a lender and is rehabilitated. When the loan is rehabilitated, the consequences of your default go away, including the default status on your credit report and any wage garnishment you were subject to.
- Federal Student Aid: Subsidized and Unsubsidized Loans
- Federal Student Aid: Perkins Loans
- Federal Student Aid: Deferment and Forbearance
- Federal Student Aid: Understanding Default
- Federal Student Aid: Getting Out of Default
- Department of Education. "What Are the Consequences of Default?" Accessed Dec. 9, 2019.
- Department of Education. "What is Default?" Accessed Dec. 9, 2019.
- Department of Education. "What is Loan Rehabilitation?" Accessed Dec. 9, 2019.
- Department of Education. "Loan Rehabilitation," Accessed Dec. 9, 2019.
- Department of Education. "Getting Out of Default," Accessed Dec. 9, 2019.
- Department of Education. "What is Loan Consolidation?" Accessed Dec. 9, 2019.
- Department of Education. "Credit History Impact," Accessed Dec. 9, 2019.
- Federal Student Aid. "Getting Out of Default: Loan Rehabilitation," Download Loan Rehabilitation: Income and Expense Information form. Accessed Dec. 9, 2019.
Sara Mahuron specializes in adult/higher education, parenting, budget travel and personal finance. She earned an M.S. in adult/organizational learning and leadership, as well as an Ed.S. in educational leadership, both from the University of Idaho. Mahuron also holds a B.S. in psychology and a B.A. in international studies-business and economics.