Dealing with delinquent student loans
Actions to take when dealing with delinquent student loans.
Student loans will never go away until they are paid. Borrowers need to deal with student loan debt sooner than later, because the interest charged is steadily increasing the total debt owed. So where is a borrower to start when owing on student loans that have been in default? Begin with the servicer of the student loan. The servicers are those who receive the payments on the loans.
When talking to the servicer, keep good written notes of the conversation. Ask for the name of the person you are talking with. If an agreement of repayment is made, ask when it will take effect. Always request for written confirmation to be sent to you on the agreement. If you do not receive the written agreement within a week, call the servicer back. This is also true if a borrower is requesting deferment or forbearance. It is also recommended that the borrowers continue to pay on the loan until you receive the written confirmation. It is also a great idea to send all communications by certified mail with return receipt requested.
Student loan borrowers also have a one-time opportunity, called loan rehabilitation, to remove a federal student loan default from their credit history and regain student aid eligibility. The borrower will need to make six consecutive full and voluntary on-time payments in order to regain eligibility for federal student aid. If the borrower is able to make 10 consecutive on-time payments, they can apply to have the loan rehabilitated and the default can be removed from their credit history. For more information on loan rehabilitation, contact the US Department of Education’s Default Resolution Group at 1-800-621-3115.
Borrowers need to understand that student loans are exempt from bankruptcy. The only possible exception is if the borrower is permanently and totally disabled, and even this can be a long shot. What bankruptcy may be able to do for the student loan borrower is eliminate enough other debt to free up funds to start repay the student loans. Contact an attorney for more information on bankruptcy.
Michigan State University Extension has additional information on managing debt at mimoneyhealth.org. The Federal Student Assistance ombudsman helps solve borrowers resolve problems and disputes concerning federal student loans. Most servicers/lenders guarantee agencies have their own ombudsman as well. If private loans are an issue, the Dodd-Frank Act established a CFPB Private Education Loan Ombudsman to assist private student loan borrowers. Complaints on private student loans can be filed through the student loan complaint form online.
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