Borrowers Should Seek Help Before Student Loans Turn into Default
Borrowers should receive numerous notifications from their student loan servicers before they fall delinquent or default, according to higher education expert Mark Kantrowitz. Typically, a payment becoming 90 days late is required for it to be reported to credit rating companies. It takes around 270-360 days for defaults to have consequences, such as wage and Social Security benefit garnishment, affecting up to 15%, and loss of eligibility for mortgages from the Federal Housing Administration or the U.S. Department of Veterans Affairs.
“Borrowers should not let it get this far,” Kantrowitz emphasized.
For borrowers unable to pay, options may include requesting a forbearance, which allows borrowing to be put on hold for up to three years, but interest still accumulates, potentially leading to a larger bill upon payoff. Income-driven repayment plans, which cap monthly payments at a percentage of disposable income and forgive remaining debt after a certain number of years, can be suitable for those concerned about being unable to afford their debt for an extended period. However, it’s important to explore these options ahead of time.
Once defaulted, borrowers must undergo loan rehabilitation, a process involving several months of efforts that can ultimately lead to assistance with affordable repayment plans and deferment or forbearance.