Debt Management: Understanding and Avoiding Default and Delinquency

If you make a student loan payment late, don’t pay enough, or don’t make a payment at all, you are delinquent. Once your delinquency reaches a specific number of days (depending on your loan type), your loan is in default.

The consequences of default are severe. Fortunately, you have options to avoid delinquency and default, and SLGFA can help:

• Request a different repayment plan
• Postpone or reduce your payments through deferment or forbearance
• Consolidate your loans into one loan, possibly with a lower payment
• If SLGFA guaranteed your loan, contact the Default Prevention Department to assist you in managing your debt: 800-622-3446, ext. 655
• Learn how to manage all of your finances

If you are having difficulty making payments, you should immediately contact your loan holder. Don't wait for your loan holder to contact you.

Other things to keep in mind:

• Open all mail, especially regarding your student loans.
• Act promptly on all communications your loan holder or guarantor sends you and retain a record of these contacts in your student aid file.
• Keep copies of all documents, including copies of the Loan Application and Master Promissory Note (MPN), correspondence, deferment forms, disclosure statements, paid-in-full notifications, records of loan checks received, repayment schedule, and payments you have made.

Consequences of default

Default can result in any or all of the following:

• Your loan holder can sue for the entire amount of your loan.
• Your credit rating can be severely damaged, making it difficult to borrow money for a car or home, or to receive credit cards. The default status can remain on your credit report for several years after you pay the loan in full.
• Your loan holder can seize your federal Treasury payments (including federal tax refunds) and state income tax refunds to pay the debt.
• Your loan holder can garnish your disposable income without a court order (administrative wage garnishment).
• You won't be eligible to receive any more federal financial aid (and possibly state aid) unless you make satisfactory arrangements to repay what you already owe.
• You may be ineligible for assistance under most federal benefit programs.
• You'll be ineligible for deferments or forbearance.
• Your loan holder can assign your account to a collection agency.
• You'll be liable for the costs associated with collecting your loan (could be as much as 25 percent of your principal and interest balance), plus court costs and attorney fees.
• You may not be able to renew a professional license you hold or may jeopardize your chances for certain types of employment.
• Your loan may be assigned to a professional collection agency.