What to Do If You Default on Your Student Loans

Student loan counseling agency Take Charge America providers
borrowers with options to bring loans into good standing, restore
financial health

PHOENIX–(BUSINESS WIRE)–With student loan debt now totaling $1.3 trillion in the United States,
the student loan crisis has reached a fever pitch and now affects more
than 40 million Americans. To compound the crisis, the Consumer
Financial Protection Bureau reports that one in four borrowers are in
delinquency or default on their student loans.

Unlike other kinds of debt, student loans are rarely discharged in
bankruptcy. And, the federal government has the power to garnish wages,
tax refunds and even Social Security to recoup payment.

“Everyone knows the student loan problem is bad and getting worse, but
few are aware of the options for repaying loans and restoring financial
health – even for borrowers in default,” said Sarah Hamilton, a student
loan counseling supervisor with Take Charge America, a national
nonprofit credit counseling and student loan counseling agency
. “The
most important – and perhaps the most difficult – tip for people who
have defaulted on their loans is to address the problem head-on, no
matter how painful it seems.”

Hamilton offers borrowers advice on repaying student loans if they are
in default, or headed there:

  1. Get clear: If you’re unsure which collection agency holds your
    loan, how much money you owe or other details about your student loan
    debt, contact the Department of Education’s Default Resolution Group
    at (800) 621-3115 or visit myeddebt.ed.gov.
  2. Don’t delay: If you’re in default, the government can garnish
    15 percent of your paycheck and tap into your tax refund. What’s more,
    the longer your loans sit in default, the higher the balances grow
    with collection fees, all the while damaging your credit rating.
    Contact your loan servicer to explain your situation, or reach out to
    a student loan counselor at a nonprofit agency for step-by-step
    guidance and a detailed review of all applicable repayment options.
  3. Rehab your loans: If paying the loans in full isn’t possible,
    rehabilitation may be a good option. Once you make nine consecutive
    payments, which are based on your discretionary income, the defaulted
    status is removed from your credit report. At that time, the loan is
    considered rehabilitated and may be eligible for other repayment
    programs.
  4. Consolidate your debt: Loan consolidation allows you to pay off
    your loans and creates a new direct consolidation loan with a fixed
    interest rate. First, you must agree to the terms of the new direct
    loan, including repaying it under an income-driven plan. After three
    consecutive payments, you can select a different repayment option if
    income-driven isn’t right for you. Consolidation doesn’t remove the
    defaulted status from your credit report, but it does zero out old
    loans and reflects a new loan line item.

Borrowers seeking more information about student loan repayment options
can visit Take Charge America at studentloans.takechargeamerica.org
or call (877) 784-2008.

About Take Charge America, Inc.

Founded in 1987, Take Charge America, Inc. is a nonprofit agency
offering financial education and counseling services, including credit
counseling, debt management, student loan counseling, housing counseling
and bankruptcy counseling. It has helped more than 1.6 million consumers
nationwide manage their personal finances and debts. To learn more,
visit www.takechargeamerica.org
or call (888) 822-9193.

Contacts

Aker Ink
Andrea Aker, 602-339-7339
andrea.aker@akerink.com