3 Tips to Avoiding Student Loan Default (aka Financial Catastrophe)

If you’re facing student loan default, the best advice is simple: avoid it. Defaults, or debts that are 270 days past due, can wreak havoc on your finances and livelihood:

• Borrowers become ineligible for future financial aid, deferment and forbearance programs.
• Loans are sent to collection agencies that may charge fees as high as 25 percent of your balance.
• Your principal, interest and fees can get hit with additional charges.
• The government is allowed to seize wages and tax refunds until you pay up.
• Student debt is typically non-dischargeable in bankruptcy.

Okay, now for some good news. If you’re staring down the possibility of default, here are three tips to help you stay clear.

1. Monitor your repayment schedule

The government recently rescinded its “last chance” for borrowers. That means you no longer have 60 days to get your payments back on track if you receive a notice of default.

Make sure you track your payment schedule carefully. Even if you’re enrolled in automatic payments, confirm them by reviewing your checking account statement. If you haven’t received a bill or seen any activity, contact your lender asap.

2. Request deferment or forbearance

If you’re having trouble making payments because of a financial hardship (e.g., job loss), you may be eligible for deferment. With deferment, you can suspend your obligation on your student loan temporarily until you get your finances back on track.

In the event that, in addition to your financial trouble, you also have a medical emergency that complicates repayment, you can request forbearance. Just remember that interest is likely to accrue on any unsubsidized loan while you postpone payments. Deferment and forbearance aren’t long-term solutions, but they may provide temporary relief. Speak to your lender to learn more.

3. Seek debt counseling

When it comes to debt, sometimes circumstances combine to create seemingly impossible odds. If you feel like default is inevitable, or you want to explore your repayment options, talk to a BALANCE Certified Financial Counselor. You’ll get one-on-one guidance to make the best possible decision on paying off your student debt.

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