So you did it.
College wasn’t that hard; even the classes on cultural anthropology, Aristotelean ethics and advanced dada base design seemed to breeze right by, when you thought about it from the desk in your office at your $70,000 a year entry level tech job.
But then all those student loans you took out started coming back to haunt you. You knew it might take you up to 20 years to pay off the debt, but had kept that stressful fact at a comfortable, abstract distance for a few years after graduation.
The payments were high—when you finally began making them—the collectors intimidating and finally you fell behind, choosing a relatively small disposable income ($1000 per month) over a solid credit rating.
You did the ghost thing to the point that you seriously began to believe that they had forgotten about you.
They didn’t. The phone calls and emails continued. Letters started arriving, soon they filled the bottom drawer of your favorite IKEA desk at home. And then one day when you checked your bank account after the latest direct deposit from work you noticed you only had $150 available. Digging—for the first time—through the stack of correspondence the federal student loan authorities had sent you over the past year, you finally found what you’ve been looking for.
The notice of garnishment was official but simple. You had defaulted on your loans six months prior. Since you hadn’t responded for any of the official electronic notifications sent your way, the Department of Education felt that it had no choice but to sue you for the $241,000 you owed for tuition and fees at this or that highly rated post-secondary institution.
The result was a court order that sent roughly two-thirds of your income over to your defaulted account, on schedule, every two weeks. The main result of this of course was that you couldn’t really afford to eat or take public transportation anymore either. Then there was the thing about your rent. Oh, yeah.
Feel free to wake up screaming any time now.
Fortunately there are ways to set things straight with the government and your student loans. Though loan forgiveness for large populations of college-educated Americans remains a pipe-dream—except in the special cases noted below—there are ways to rehabilitate your loans and get you back on track. The result may not be perfect, but it’s guaranteed to be nightmare ending, rendering a scary lifelong commitment into a few years of measured suffering that ultimately results in financial freedom.
Defaulting on a student loan—whether you suffer the ignominy of garnishment or tax-refund attachment or not—will have disastrous effects on your economy, short-term and long-term. Your credit score will decline; as a result, financing a new car, buying a house or just living comfortably may become just out of reach—the consequences of your loan’s default status.
By working on getting your student loan payments back on track, you create a trail that says you are trying to reestablish good credit and can be trusted to make other credit-based purchases responsibly.
The federal government has specific guidelines for rehabilitating a defaulted loan. If you have defaulted on a loan, there’s a good chance the government will garnish your paycheck or offset tax refunds in an attempt to get some of their money back. By entering into and completing a rehabilitation agreement with the Department of Education, borrowers can ultimately end involuntary collection methods and begin whittling down their debt by making regular monthly payments.
To participate in the federal student loan rehabilitation program you have to have been part of the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program and be willing to agree in writing to make nine voluntary, reasonable—often income-based—monthly payments to the institution or financial organization assigned to the defaulted loan. Once you’ve successfully completed the agreement, the period of default ends and borrowers begin at square one again.
This one time process also applies to Perkins loans, but there is a separate process and administrative authority for that type of loan rehabilitation.
Besides rehabilitating a defaulted student loan, borrowers can also use a method called loan consolidation to end a default situation. In instances such as these, the government again provides a clear outline of the steps necessary to achieve consolidation.
First, borrowers must sign paperwork which authorizes repayment of the defaulted loan through a new loan; then the borrower must make three voluntary, on-time, full monthly payments to their defaulted account. Defaulted loans can’t be consolidated if there’s a garnishment order associated with them, unless and until a judge has lifted the judgment or the ruling on the garnishment vacated (which is pretty rare in student loan civil law).
Simply stated, you can’t achieve either of these situational categories if your loan is in default. And in any case, they are both temporary in scope and duration.
Forbearance occurs when the government grants a borrower a respite from payment due to economic hardship. Although the need to make regular principal payments to your loan may be officially suspended, interest on the loan continues to accrue.
Deferment is a status that is rarely granted, but in which, generally speaking interest does not accrue during the payment suspension period.
Loan forgiveness programs are available for borrowers interested in working as teachers in much needed areas or in other realms of public service deemed worthy by the Department of Education. For these types of programs, interested parties must be willing to sign on to long-term employment programs where their skills are used to bolster at-risk students, school districts and other caregiving community organizations.
In very unusual circumstances, a borrowers loan may be discharged. That is, if their educational institution closes or faces problems with student certification a loan may be labeled as discharged. The only other ways to achieve this status is through death or total disability. Student loans are ordinarily cannot be discharged through bankruptcy proceedings.
For more information on how to work with the federal government to resolve issues with student loans, visit https:/