How to Get Out of Default on a Student Loan

Defaulting on a student loan has serious financial and legal consequences. But a loan default is not the end of the world — or the end of your credit. There are several ways you can get out of default, repay your debts, and repair your credit rating. The process begins with confronting the problem and finding practical, manageable ways to solve it.

No matter how carefully you plan your life after college, circumstances can change. Many new graduates have trouble finding jobs. Some discover that they want to follow a different career path. Others have serious misfortunes or setbacks and suffer financially as a result. If you’ve let your loans go into default, you’re not alone. According to the U.S. Department of Education, student loan defaults are on the rise. In fiscal year 2010 and 2011:

As the costs of higher education increase, so do the default rates on student loans. The sooner you confront the reality of student loan debt, the greater your chances of avoiding the serious consequences of default, such as added interest fees and penalties, garnished wages, and loss of eligibility for further loans. In some cases, you may even be sued for the full amount of the defaulted loan.

If you contact the lending agency within 90 days after the 270- or 120-day default period, it’s possible that the agency hasn’t reported your loan as being in default. This means that you could start repaying the loan before your credit rating has been seriously harmed.

What Are My Options?

There are several options for repaying a defaulted student loan. Each strategy has its advantages and disadvantages. Your choice should be based on your financial resources, the status of your loans, and your plans for the future. With most repayment plans, you have only one chance to get out of default. If you stop making payments after making arrangements to pay off your debt, you could face severe financial consequences.

 
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