Get Student Loans Out of Default

How to Get Student Loans Out of Default

Defaulting on a student loan doesn’t mean missing a couple of payments. Default is the result of a long delinquency in payments, and it is not a situation in which you want to find yourself.

In fact, defaulting on your loan may result in being sued, having your wages garnished, and missing out on tax returns that are diverted by the federal government to pay off your federal loans.

What can you do if you’ve gone into default?

Attorney Daniel Gamez specializes in representing people who need legal help with their student loans. He has different recommendations for federal loans than he does for private ones. Let’s take a look.

Federal loans: Forbearance, deferment, and income-driven repayment

If you have federal student loan debt, Gamez suggests getting enrolled in a repayment program to bring your loan current. Federal loans offer options such as forbearances and deferments, as well as income-driven repayment plans.

A forbearance allows you to pause repayment on your loan for a set period of time. Deferment works the same way but has an added advantage: you don’t accrue interest during the time off. Typically, you can call the lender to explain your situation and discuss what you can afford, and they will work to get you back on track.

Private loans: debt settlement

If you have a private student loan, Gamez recommends a debt settlement if loans are in default.

“The lenders want to save costs related to debt collection lawsuits. Plus, they can write off their losses. Usually, you can reach a debt settlement before you are sued for having this debt in default. Once your debt settlement is complete,  you can then start rebuilding your credit and moving on with your life,” he says.

Gamez shared a story of one of his clients who was able to work through a default with their federal student loan:

“Our client defaulted on her federal student loans years ago when she lost her job and could no longer afford the payments. She received a notice from the U.S. Department of Treasury that they had intercepted her federal tax refund to apply towards the balance.

She came to us to see what could be done with her student loan. We were able to help her get into a loan rehabilitation program in which she will make nine monthly payments of $5.00 per month to get her loan out of default.

Once she completes these payments, her account will be brought current and all negative reporting will be removed from her credit reports. She will then go into repayment on the loan, but will likely qualify for lower payments through an income-driven repayment plan.

A Loan Rehabilitation is a great way to get defaulted student loans back into repayment as long as you follow through with an income-driven repayment plan post-rehabilitation. Loan rehabilitation can be tricky, but with proper counseling and representation, this will be a huge benefit to those in default.”

Do you need a lawyer to help with loans in default?

You can try to settle private loans or get into a federal loan rehabilitation program on your own.  The Federal Student Aid website has a lot of helpful information on how to do this.

Gamez advises talking to a debt relief attorney or student loan lawyer first and says you should never have to pay for advice upfront. “Go to an attorney who offers a free consultation to go over your particular situation,” he suggests. “The advantage of going to a debt attorney is that they can wind up saving you quite a bit of money and stress.”

He explains that the debt collection companies who go after borrowers in student loan default have vast resources of attorneys who “do nothing but sue people all day, every day,” says Gamez.

He adds, “It’s extremely beneficial for the borrower to hire a debt attorney who has a proven track record of helping people get out of student loan default.”

Be wary of debt relief companies

While Gamez thinks it’s a good idea to seek advice from a debt relief attorney, he warns you to be wary of debt relief companies. “These companies are often caught up in scams preying on already vulnerable consumers in default.”

Student loan debt relief companies charge borrowers fees to enroll in federal consolidation, forgiveness, and repayment plans, but these programs are free through their loan servicers. Borrowers often realize this too late after they’ve already paid a debt relief company hundreds of dollars.

Selling debt relief is legal, in theory, and has been compared to income tax preparation services. But lines are often crossed by shady companies that are violating consumer finance protection laws.

The best way to seek help

If you have defaulted on your federal student loan, contact The U.S. Department of Education for help. They will work with you to figure out the best way to resolve your default.

If you have defaulted on a private student loan, first contact your lender to see what options they offer for getting your loan back on track. But don’t settle right away, because you might be able to get a better deal with a different lender.

That being so, it’s important to shop around to ensure you’re not settling for just any offer – you want to be sure you’re getting the best offer.

Start by comparing student loan refinancing lenders side-by-side to narrow down your list and discover your top options.

You may also want to consider getting a free consultation with a debt relief attorney who can properly guide you through the process to ensure you get the best result.

Either approach you take is a step in the right direction, as it will help you get on the right path towards becoming debt-free once and for all!

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