Delinquincy and Default

Falling behind on student loan payments can have devastating consequences. Don't let this happen. Contact the holder of the loans for various options and alternatives.

Remember:

  • When a borrower obtains a student loan(s) to attend school, the signed Master Promissory Note (MPN) legally obligates the borrower to repay the loan(s).
  • Making the monthly student loan payments on time can help to establish a good credit rating.
  • Failure to pay all or part of the monthly payments when due, can result in delinquency and/or default.

Delinquency

  • If a borrower fails to make loan payments when due, the loan(s) becomes delinquent.
  • Delinquent loans can adversely affect a borrower's credit rating.

Delinquency begins when a borrower fails to make the equivalent of one full payment after the payment is due. A loan(s) can remain in a delinquency status from 30 days until 270 days, at which point, the loan(s) enters into a default status. During the delinquency period, the holder of the loan(s) must exercise "due diligence" in attempting to collect the loan; that is, they must make repeated efforts to locate and contact a borrower about their delinquent status. For more information on how to prevent your loans from becoming delinquent, please view Difficulty Making My Payments.


Default

  • If a loan is delinquent for 271 days or more, it enters into a default status.
  • When a loan(s) defaults, the entire unpaid balance, along with any accrued collection fees and interest, comes due immediately.

A technical default can be recorded on loans owned by the Department of Education between 240 and 270 days. The holder of the loan(s) will "accelerate" a defaulted loan(s), which means that the entire balance of the loan (principal and interest) becomes due in a single payment. The holder of the loan(s) will take steps to place the loan(s) in default and turn the loan(s) over to the state guaranty agency or to the U.S. Department of Education.

Some Consequences of Default
This can include one or all of the items listed below.

  • Damage to a borrower's credit rating.
  • Garnishment of a borrower's wages.
  • Withholding of a borrower's tax refunds.
  • Loss of eligibility for federal and state financial aid.

Avoiding Delinquency and Default
If a borrower is having trouble repaying their loan(s), they should not wait until the loan(s) is delinquent to seek help.

If a borrower....

Then...

has problems making payments when they're due:

Change the due date. This can ensure a borrower has money in the bank when it's time to pay the loan bill. Contact the holder of the loan(s) to request this.

can make smaller monthly payments:

Consider other repayment plans. This can help reduce the monthly payments or allow a borrower to make interest-only payments.

can't make any payments:

See if a deferment or forbearance is an option. Postponing the monthly payments may be the right choice to prevent the loan(s) from entering default.

missed payments:

Take action today to prevent loan default. Find ways to keep the loan(s) from entering default and protect the borrower's ability to obtain credit in the future.


Who currently holds the defaulted loan(s)?

This is the first question you must answer in an attempt to correct a defaulted student loan(s). If a borrower is unsure of their loan holder, they can call 1-800-4-FED-AID (1-800-433-3243) for an address and/or phone number. A borrower can also go online to visit the National Student Loan Data System (NSLDS) at www.nslds.ed.gov to locate the holder of their loan(s), the outstanding balance and the current loan status. If a borrower received their student loan(s) from Baker College, they can contact Baker College Financial Aid Office, or e-mail a Baker College System Student Loan Representative at loans@baker.edu.

What Options Are Available If a Borrower Defaults?

There are a few alternatives available to help student loan borrowers bring their loan(s) back to good standing and out of default, especially if they are thinking about returning to school. The options that could be available are:

  • Pay the Loan in Full
  • Enter the Rehabilitation Program
  • Reasonable and Affordable Payments
  • Enter the Default Consolidation Program

It is up to the borrower to determine which option is best. The decision should be based on the amount a borrower can afford to pay initially, the desired outcome (a clean credit report, returning to school, etc.) and the ability to make regular monthly payments in the future.
 

Options Available to Resolve Defaulted Student Loans

OPTION

DESCRIPTION

RESULTS

Pay Loan(s) in Full

Under this option, the borrower pays the loan(s) in full. If the borrower can exercise this option, this will immediately resolve the default(s).

Default(s) on credit bureau will be marked as paid in full.

Reasonable & Affordable Payments

This option allows a borrower to make arrangements to make consecutive monthly payments until the loan(s) is paid in full. The loan(s) will remain in default status until completely paid.

  • Once all the payments have been paid and the defaulted loan(s) is paid in full, the credit bureau will be marked as paid in full.
  • After six (6) consecutive monthly payments, the borrower's financial aid eligibility may be reinstated. But if one monthly payment is missed, the loan(s) will be returned to a default status and the borrower will lose eligibility for financial aid.

Rehabilitation Program

 

This program allows a defaulted borrower to make nine (9) consecutive payments to show good faith in wanting to resolve the default. After the borrower has made six (6) consecutive monthly payments, financial aid eligibility may be reinstated. The voluntary on time payments must be paid no later than 20 days after the due date and within ten (10) consecutive months. Once the payments have been received and recorded, the holder of the loan(s) will attempt to sell them to a new lender (Department of Education) creating a brand new loan(s). Only after the loan(s) is purchased is the loan(s) considered rehabilitated. At this point, all deferment and forbearance rights are returned due to creating a new loan.

  • After all nine (9) payments have been recorded; the credit bureau will be cleared of all default transactions.
  • After six (6) consecutive monthly payments, the borrower's financial aid eligibility may be reinstated. If one (1) monthly payment is missed, the loan(s) will be returned to a default status and the borrower will lose eligibility for financial aid.
  • If a payment is missed or is paid after 20 days of the due date, the rehabilitation will be canceled and the borrower will not be able to attempt this option again.

 

Consolidation Program

Under this program, the borrower can consolidate the defaulted loan(s) into a new loan. Normally, three (3) consecutive on time payments would need to be completed before the consolidation application can be processed, but if the borrower selects and qualifies for the income-contingent repayment plan for the repayment of the consolidation, the three (3) payment requirements will be eliminated. The consolidation process takes 60-90 days. When the consolidation process is completed, it creates a new loan with all deferment and forbearance options available. There is only one lender offering consolidations, which is the Department of Education (DOE). To contact the DOE Consolidation Center, you can call them toll free at 800-557-7392 or go online to www.loanconsolidation.ed.gov.
All normal consolidation guidelines and regulations will be followed in the processing of any defaulted loan(s).

  • Once the consolidation is done and the new loan is created, the defaulted loan(s) will be marked as paid in full at the credit bureau.
  • Once the application has been processed, the consolidation center will send a loan payoff to the holder of each defaulted loan, thus paying any loan(s) in full. The borrower will need to obtain, from that holder(s), a letter of good standing stating that the defaulted loan(s) has been paid in full.

 

For further information on resolving defaulted student loans, go online to Guide to Defaulted Student Loans.

The Baker College System
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