It’s important to keep up with student loan payments, or else you might be in for some serious financial and legal consequences. Wage garnishments and court-sanctioned debt collection measures are a few of the possible repercussions. But, if you stay on top of those payments, you can maintain a good credit score and avoid any penalties or extra interest charges that come with late payments.
Do you have a defaulted student loan 20 years ago?Maybe you left the country. Or maybe you ignored the bills because you couldn’t afford the payments.
Whatever your reason, it’s been years since you’ve dealt with your student loans. But now, you’re ready.
Here are step-by-step instructions on what to do when it’s been years since you paid your student loans.
Step 1: Find your loans.
Old federal student loans are easier to find than private student loans. The Department of Education lists every type of loan you borrowed on theFederal Student Aid site. So even if your loans have fallen off your credit report, you can find them onStudentaid.Gov. You can also call FSA customer service at 1-800-433-3243. The representative will check theNational Student Loan Data Systemto find your loan information.
Finding private student loans is trickier. There’s no central database for private student loan debt. To find your loans, check your credit reports with all three bureaus to see if any student loans that aren’t on the FSA website are listed. Those loans are likely private student loans. Another option is to call the most popular private lenders to see if they have an account for you. But that’s tedious and scary.
Step 2: Ask about your repayment options.
Once you find your loans, the next step is to figure out your repayment options. Federal student loan borrowers have four options to get out of default:
repayment in full
settlement
consolidation
loan rehabilitation
See AlsoFederal Student Aid
The best option for you will depend on your personal finances and whether you’ve previously consolidated your loans or completed the loan rehabilitation program. If you have an FFEL Consolidation loan, you may be able to consolidate a second time. But loan rehabilitation is limited to once per loan. Check out this guide to learnhow to get student loans out of collections.
Also, the Education Department rolled out a plan to give defaulters a “fresh start”, providing access to repayment plans, financial aid, and loan forgiveness programs — all without the headache of rehabilitation or consolidation.
Related: Fresh Start Program Student Loans
Private loan holders and collection agencies don’t offer the same repayment options. Unless you can find a lender willing to refinance your delinquent debt, your best option will either be negotiating a payoff orfiling a student loan complaintin bankruptcy.
Learn More:Can You Settle Student Loans?
Step 3: Follow up with the new servicer.
If you don’t negotiate a payoff, your federal loans will be sent to a newstudent loan servicerafter you get out of default. Make sure the new company has updated contact information for you. Also, review your payment plan. If you need a lower monthly payment, look into the different income-driven repayment plans. Those plans give you an affordable payment based on your family size anddiscretionary income.
You can use theLoan Simulatorto estimate your monthly bill under the repayment options the Department of Education offers.
As an expert in financial matters and student loans, I can assure you that navigating the complexities of student loan repayment after years of neglect requires careful consideration and strategic planning. It's not merely about catching up on payments; it involves understanding your options, dealing with potential consequences, and making informed decisions. Here's a breakdown of the concepts mentioned in the article:
Importance of Keeping Up with Student Loan Payments:
Staying on top of student loan payments is crucial to avoid serious financial and legal consequences. Defaulting on loans can lead to wage garnishments and court-sanctioned debt collection measures. On the positive side, maintaining timely payments helps preserve a good credit score and prevents additional penalties and interest charges.
Dealing with Defaulted Student Loans:
If you find yourself dealing with defaulted student loans after a prolonged period, the article provides a step-by-step guide on what to do:
Step 1: Find Your Loans
- Federal Student Loans: The Department of Education provides a comprehensive list of federal student loans on the Federal Student Aid site. You can also contact FSA customer service or check the National Student Loan Data System.
- Private Student Loans: Locating private student loans is more challenging as there's no central database. You may need to check credit reports with all three bureaus or contact popular private lenders.
Step 2: Explore Repayment Options
- Federal Student Loans: Borrowers have options like repayment in full, settlement, consolidation, and loan rehabilitation. The best option depends on personal finances and previous loan consolidation or rehabilitation.
- Fresh Start Program: The Education Department offers a "fresh start" program, providing access to repayment plans, financial aid, and loan forgiveness programs without the need for rehabilitation or consolidation.
Step 3: Follow Up with the New Servicer
- Federal Loans: After getting out of default, federal loans may be transferred to a new student loan servicer. Ensure the new company has updated contact information and review available payment plans, including income-driven repayment options.
Additional Considerations:
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Private Loan Repayment: Private loan holders and collection agencies may not offer the same repayment options as federal loans. Negotiating a payoff or considering a student loan complaint in bankruptcy may be necessary.
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Loan Simulation: The article suggests using the Loan Simulator to estimate monthly bills under different repayment options provided by the Department of Education.
In summary, addressing defaulted student loans requires a systematic approach involving the identification of loans, exploring repayment options, and staying informed about available programs. For those with federal loans, the article highlights the importance of following up with the new servicer and considering income-driven repayment plans. For private loans, negotiating a payoff or exploring legal avenues may be necessary.
