Loan
Default
Loan |
|
Your |
When you take out a Federal Stafford loan, Federal PLUS loan, you sign an agreement that you'll repay it. That agreement is called a Promissory Note. Keep it along with the other documents you receive. Those documents tell you how and when you must repay. If you have any questions about your loan, if you are having trouble making the payments, or if you have a name, address or telephone number change, contact your lender.
If you don't repay your loan, you'll go into delinquency, then into default, then the state and the federal governments both may take action against you to recover this legal debt. You could even be sued. Remember, once you take out one of these federal loans, you must repay it - even if you decide not to finish your education. A default blots your record and is hard to erase. DON'T LET IT HAPPEN TO YOU. The following are examples of possible consequences to loan default. No More Federal Student Aid
Anne defaulted on a student loan. Until she contacts the holder of her loan to make repayment arrangements and becomes eligible again, she can't get any more federal student aid. DON'T LET IT HAPPEN TO YOU. No Tax RefundBOB received a notice that the Internal Revenue Service (IRS) was going to apply his refund toward the repayment of his defaulted federal student loan. The IRS, the Michigan Department of Treasury, and many other states can withhold a defaulter's tax refunds, garnish wages, put a lien on assets - all toward the repayment of a defaulted student loan. DON'T LET IT HAPPEN TO YOU. 
No Job = No Car or Home LoanCAROL was easily the most qualified candidate for a However, a routine credit check showed that Carol hadn't repaid her federal student loan - as she'd agreed to do - and the car and home loans weren't approved because of her poor credit history. By not repaying her federal student loan, she didn't get the job . . . or the car . . . or the home. It took only one default to make Carol a three-time loser. DON'T LET IT HAPPEN TO YOU. Pay Now or Pay More LaterDAVID took out a $5,000 federal student loan at a 6.68% interest rate, to be fully paid within ten years (120 months). His initial payment breakdown was as follows: |
| Original loan amount(Monthly payment $57.23) | $5,000.00 | Total Interest | + 1,868.11 | Total | $6,868.11 |
After paying on his loan for over two years, David stopped and didn't make anymore payments. It cost him even more: |
| Balance owed after two years of payments | $4,247.41 | Interest added after 270 days overdue | +209.88 | Guaranty agency's added collection fee (25%) | + 1,114.32 | Interest added for no payment in one year | +297.75 | New Total | $5,869.36 |
| After David defaulted, the federal government bought his loan. He still didn't send payments - "the government" added its collection fee then forwarded his account to a collection agency. |
| New loan balance | $5869.36 | New monthly payment for 10 years $67.18) | Total loan amount - after default - (with interest) | $8,062.32 |
As a borrower, you can pay what you owe, or default and pay much, much more. Questions about your rights and responsibilities as a borrower?Contact:  |
Remember, if you are having any problems with your loan be sure to continue making payments, until the problem is resolved.
ANNE wants to return to school. The last time that she was in school she had a federal student loan, but she dropped out and didn't bother repaying her loan.
job relocation that was perfect for her, and she prepared to buy both a new car to drive to work and a new house.