If you go more than nine months without making a payment on your
student loans, you will be in default. If you are thinking, I'll
just declare bankruptcy - not so fast. Student loans are NOT
dismissed in bankruptcy: You will still owe the money and the
lenders can demand immediate payment in full.
You have three options once you are in default:
1) Rehabilitation - Reach an agreement with the lender and pay
on time for 13 consecutive months. After that,
you're out of default and the black mark is
removed from your credit history.
2) Consolidation - Combine all of your loans into one new loan.
With this option, you're out of default
immediately, but the history of previously
missed payments stays on your record.
3) Discharge - Under very limited circumstances, like permanent
disability, the loan might be discharged. The
rules have relaxed somewhat over the last year,
so if you were turned down for a discharge
previously, apply again.
When it comes to defaulting, you may or may not need a lawyer. If
your wages are garnished, there is nothing a lawyer can do but it
there is a challenge or a dispute, you need to file papers within a
certain amount of time. A lawyer can help you with that.
For more information, go to the Department of Education's website
on default issues at www2.ed.gov/offices/OSFAP/DCS/index.html or
give them a call at 800-621-3115.
Sheila McKinney
