Student Loan Pitfalls: Dangerous Default
The student loans just like the other forms of financial aid are a service that is
subject for repayment. However, although aware of such fact, many borrowers
still fall to the trap of walking away from student loan debt which then results to
series of consequences. They tend to ignore their being summoned to enter
repayment usually either 90 or 120 days after separating from school or after
dropping below half-time enrollment. With this, the loans remain delinquent for
270 days or become 270 days past due at any time, leading the loans to “default”
Student Loan Default, Defined
Defaulted student loans are actually defaults made by the borrower to the
creditor of the terms and conditions of the student loan contract. It is usually
caused by the act of escaping from debts, leading to unfavorable consequences on
the part of the borrower.
Basically, prior to the declaration of student loan default is the delinquency
period. At this period, the lenders of student loans authorized under Title IV of
the Higher Education Act will exhaust all efforts to find and contact the borrower.
If the lender’s efforts of locating the debtor are unsuccessful, the loan will then be
placed in default. It will be turned over to either the state guaranty agency or the
Department of Education. And, once the loan enters the default status, the
maturity date is accelerated, making the overall payment in full due right away.
The Consequences of Student Loan Default
When the loan enters the default status, several consequences are connected to it.
Some of them are mentioned below:
The loans may be turned over to a collection agency.
The borrower will be liable for all the costs associated with collecting the
loan. This may even include the court costs as well as attorney fees.
The borrower can be sued for the entire amount of the loan.
The wages may be garnished.
The federal and state income tax refunds may be intercepted.