Defaulting on Student Loans
Your loan is considered in default when there has been no payment nor attempt to arrange for payment for 180 days. To get out of default, the student must request a "reasonable" repayment schedule from the lender. The lender will consider the request based upon information supplied by the student and if the request is approved, the lender will suggest a new amount.
There is no amount set by the term "reasonable" but if accepted by the student, the new plan must not reach default a second time. Accordingly, if the amount is not acceptable, re-contact the lender before agreeing to the schedule. WARNING! You do not get a second chance to get your loan out of default. Therefore, agreeing to the terms is essential. Also be aware that though repayment amounts are rarely set below $50, theoretically a "reasonable" amount could be as low as $5.
When you have completed six on time payments, you can apply for a new federal loan. However, to be completely out of default, you must make 12 consecutive on time payments. But once your loan is out of default, you have other options available to you such as deferment, forbearance, consolidation, and even cancellation.
Special Note:Perkins Loan borrowers who are in default have recently been offered another option called "Rehabilitation". A borrower can make arrangements to make 12 "on time" monthly payments after which his/her loan default record is removed from credit bureau files and he/she is back in repayment status. Rehabilitation can be attempted any number of times(if the borrower does not meet the 12 on time payments) but it can only be accomplished once. If borrower goes into default again after completing Rehab, there is no second chance. This is only available on Perkins loans in default.
If your loan is not in default and you are having difficulty making ends meet, you may be eligible to postpone payment. A forbearance is an approved general delay from making payments for a set period of time but not for any particular reason. Forbearance is generally requested only when deferment is not or cannot be used. With a forbearance, interest continues to accrue. A deferment is similar but does not accrue any interest. But the major difference between the two is that a deferment includes a very specific reason for the delay.
The most commonly approved reasons for deferment include:
• Economic Hardship, Unemployment
• In-School at least Half-Time, Graduate Fellowship Program, Rehabilitation Training
• Parental Leave, Working Mother
• Public Service Deferment for Armed Forces, Action Program, Tax Exempt Volunteer Program, Public Health Service Program, Peace Corp, NOAA
• Education Related Deferment for Intern ship/Residency Program, Teacher Shortage Area, PLUS Loan student In-School, Fellowship, or Rehabilitation
• Temporary Total Disability Deferment Request