The Down-low on Student Loan Default


Hey everyone today we’re going to talk about a somewhat touchy subject which is student loan default. The reason I want to talk to you about this today is because it’s a pretty prevalent issue and I know people who are struggling with it and it can seem like there aren’t any options. But my job is really to help everyone who has student loans figure out the best way for them to pay off that student loan debt and to not be crushed by it. So that includes people who are struggling to make their monthly payments it’s not so easy as refinancing or loan forgiveness for everyone. Some people are really struggling to make that monthly payment, some of you may already be in default. If you are in default you’re not alone. There are over 4 million borrowers actually who have given up under the weight of over a hundred thirty seven billion dollars of education related debt. So that’s about one in ten federal student loan borrowers. So you’re definitely not alone. Today’s videos is going to share how you can avoid default if you are struggling financially because obviously your best option is to avoid default. However for those of you who have already defaulted on your student loan debt, we’re going to talk about the ways you can repair that default. And then we’re also going to talk about the consequences of doing nothing. It can be really tough to face this head-on, it can feel you might feel ashamed about not being able to make your payments, you might feel very frustrated with the system for allowing you to borrow so much money, any of those feelings can lead to a little bit of denial and so you’d rather avoid the problem and face it head-on. But we’re going to talk about why it’s best to tackle this problem and get it out of the way and then lastly I’ll share a couple of resources you can use for a little bit more information. Let’s get started and I’ll talk about how you can avoid defaulting on student loan debt. The first thing you need to do if you’re struggling financially and you’re not able to make your monthly payments is get in contact with your loan servicer right away. By doing this you should be prepared to give them a little bit of information about your specific circumstances and after that you have a couple of options. You can shift into an income based repayment plan or update your income information if that has changed and you’re already in a repayment plan like that. That way your monthly payment should be the appropriate amount for the amount of income you’re bringing in. Which means if you don’t have an income it could be as low as zero dollars a month. This option is really good, you don’t want to default because you would still be eligible on an income based repayment plan for forgiveness after 20 to 25 years. So that’s important to keep yourself out of default so you still have all of those eligibilities. The other options are deferment and forbearance. Those two options mean you won’t make any monthly payments on your student loans. Deferment is where you are allowed a period where you don’t pay on your loans and you also don’t accrue interest and student loan forbearance is where you don’t make a payments on your student loans but they continue to accrue interest and sorry that’s both the subsidized and unsubsidized loans. Unsubsidized loans will continue to accrue interest even if you’re in deferment but your subsidized won’t. The main thing here is to keep you in good standing with your loan so that you can hang on to all of the borrower benefits that you have but to find a way to get you through a financial financially difficult time. The next thing I want to talk about are your options for repairing your loan if you’ve defaulted. If you have not made a payment for over 270 days your student loan is in default which means that the full balance of the loan is due immediately. Your loan then gets sent to collections and so the options to kind of get out of default are number one to pay off the full balance of your loan. That’s not a very realistic option because if it were you would have done it and not defaulted. The the option after that is to rehabilitate your loan. You can contact the loan servicer or the company that your loan was sent to the collections company and tell them you want to repair your loan. You need to explain your situation and you should know that you will need to make nine consecutive monthly payments after they set up what that monthly payment will be with you. They’ll work with you and your income to get that established and you’ll need to make nine in a row and then your loan will be considered in good standing and the default will be removed from your loan history. That’s a really good option because you will then be eligible for deferment forbearance and loan forgiveness programs. The third option if you are already in default, is to consolidate your loan. You can either make three monthly payments in your current payment plan and then consolidate your loan or you can consolidate your loan and then agree to enroll in an income-based repayment plan of that consolidated loan. So you have those options for rehabilitating your loans. The one thing are getting out of default, excuse me the one thing to know about the loan rehabilitation option where you would make nine monthly payments consecutively is that you can only do that once for your loan. So when you commit to this it’s important to be sure that you are going to follow through and that you pay off your loan under this plan. If for any reason at any time you run into financial problems or you think that the monthly payment established is just not going to work for you based on your expenses you can contact your loan servicer and let them know that you need to submit additional income information so they can look at your monthly payment and adjust that to something that you can afford. Those are sort of how to avoid default and how to stay out of default how to repair default if you’re in and how to get back out. So why do you care? I mean the government screwed you and you had to borrow a ton of money and you can’t pay it back because you weren’t able to get a job that paid you well enough to pay it back. And you’re irritated with them. Why do they need to get their money back? Well the problem is the consequences are are all on you. When you go into student loan default your loan is immediately sent to a collections agency so you can expect to get phone calls letters from collections companies looking for their money. You can also expect to take a significant hit to your credit score which will make borrowing of any type difficult You will also not be eligible period for any further federal student aid borrowing. You will not be eligible for any type of loan forgiveness, deferment, or forbearance, or any of the federal repayment plans if you are in default. And you know the other thing is, in addition to sort of those government problems is the government can actually garnish your wages. They can work with your employer to get their money. They can withhold any type of income tax return in as payment for your student loan debt. It would be pretty difficult to have your employer be aware of student loan defaults and actually have to work with the government to have your wages garnished. The consequences can be really difficult and challenging so if you are ready for financial freedom it’s time and you’re in default it’s really time to address the problem and try and get out of default in one of the two ways really that we discussed. Either rehabilitating the loan or consolidating the loan. Again it’s not something that you should feel ashamed about because there are many many borrowers in your situation. One in ten is really a lot. Tut there are options to help you out and I really want you to have that financial freedom and not have any sense of somebody hounding you for collections. With that I have a couple of resources the FSA website so the federal student aid website at studentaid.gov is a great resource for default. It talks about ways to avoid it, it talks about how to get out of default if you’re in it, and it is really a helpful website. So if you are looking for more information I recommend that you go to studentaid.gov right away to read up more on the subject. Then you can always go to repayable.org (that’s my blog and website) and there you will find an article about how to avoid default. Then lastly you can always email me which is [email protected] if you have any specific questions. Or you can head over to the Repayable Facebook page and ask me or ask me here in the comments. I really am here to help you. I think that it’s terrible that so many people are suffering at the hands of the cost of education so I really want to help make sure that people can get out of their debt. Lastly if you found this video helpful at all I would appreciate it if you would subscribe to the channel below!!! I really hope to see you again, thank you

Paul Whisler

24 Comments

  1. Idiots make your loan due immediately but obviously you couldn't make smaller payments

  2. Hi I will be in default and I don't make more than 8K. What can you tell me? I'm 59 yo

  3. Ok I have a question, right now my student loans are in default. I have been working in Law Enforcement/Corrections for over 10yrs could I still be eligible for loan forgiveness?

  4. The first school I attended filed bankruptcy, did not finish and no access to transcripts. This was in default and I was able to get it deferred for like 20 years. Went to another school and have a degree. Employer's turn me away because of health limitations (Back Injury) and ten years after graduation, I am still unemployed. I did work at McDonalds and management was very demanding (like a need a degree to work there) and I was making ICR payments. Finally, I had my student loans DISCHARGED due to a disability recognized by SSA. Currently waiting for the two-year waiting period to end before pursuing another P/T job to avoid reinstatement of debt.

  5. I don’t get it though they say you can choose the income based repayment plan to get out of default without making 3 payments but I thought that’s only eligible for new loan borrowers? So how are you even eligible if you’re in default. I’m trying to get back in school but I don’t want to wait 3 or 9 months before being able to even apply or even be considered.

  6. ive been in default on a student loan for almost 20 years. I just got a letter from dept of education who want me to pay in full. what you think I should do? I have excellent credit, but the letter claims they will put the loan debt back on my credit report and destroy my rating

  7. So basically be informed lol I hope to not get any loans but if I do, bes believe I'm gonna be researching like a madman.

  8. I had 6 separate student loans and went into default 4 years ago, i have been making small monthly payments for 3 years. I'm still making minimum wage,,,,,,,,lets say I make minimum wage my whole life, then my loan just stays in default the entire time and I make the small monthly payments?

  9. My first year when i was 18 i had to take out a loan to live in the dorms, left college after that year had to pay medical bills and got laid off, i was in denial, and that is stupid, im now 23 and want to go back to college i have now a really good full time job that pays $11 an hour but its in customer service and it is kind of soul sucking but i have to do it, and i am in default and am working on making payments, and when i plan on going back to college i plan on first going to a community college, and then transferring to a private college i plan on majoring in music education and the private university i plan om transferring to gives a lot of scholarships that ill qualify for plus when i go back to college ill qualify for more federal aid because ill be married by then and will be at independent student status and ill plan on working as a cna while going to school

  10. I have a private student loan from AES, my loans total $63,000 approximately. My interest is as high as 12.8% and as low as 11% every 3-6 months my interest rate goes up and I have to pay more on my minimum balance. Right now my balance is at $757 monthly. It just keeps on getting bigger and this is just a minimum payment! I have never been able to reach the principal amount because they don’t play by the rules very often. I’ve even managed to pay $1,400 one month, way over the minimum and I thought for sure it would touch on the principal but the company took over a week to process the payment, and so interest accumulated daily and my payment wasn’t big enough to even hurt a dollar of my principal amount. AES has never played by the rules, when I make big payments like this, they take a week to process sometimes longer and when I make minimum payments they process the payment right away. It’s a really shallow move on their part. I can never get ahead. So I’ve made a final decision after having this loan for 10 years next April. That I’ll be going into a strategic default. I know so many people say this is a bad move. As if my life is over immediately but it’s not. But I have been pushed to the brink with payments and I can’t make huge payments anymore. $750+ payments a month has slowly deteriorated my savings account. I can’t save money, I can’t even find a better paying job yet. I’ve had close calls with interviews but nothing has happened for me yet. I’ve managed to make more money this year with a huge raise. I work with the school district, I’m not a teacher. I’m a custodian. I’ve tried to get a second job but finding jobs in a small town and in the early mornings has proven more difficult than I thought. I don’t want to sound like I’m giving up but I have to survive too. I need to have a future. I need to be able to take care of other debts that I can’t even touch on because of such a massive payment a month, not including rent! I don’t know how to improve the situation. My private loan is literally a black hole. It sucks me dry of money, and I’m left with nothing to save with, nothing to further my life in any way but to pay a bill that never seems to go down but only goes up. Idk what to do. I’m hoping being in default gives me different options that I can look at. Because paying on time every month isn’t working either.

  11. I'm starting school and can't get any financial aid because of my default. I thought I could just pick up where I left off haha…. now I'll have to pay out of pocket which almost feels impossible but I have to do it…. and also just started an agreement on taking my loan out of default… praying I can fix what I ruined…

  12. In your YT's you seem experienced, and have an unpretentious and easy to understand speaking style. My daughter spent years in default, but over the last eight months is far better focused on digging out of the student loan debt trap, with Dad's encouragement and help.

    My daughter seems to have two major buckets. One loan bucket contains remnants from a lump sum payment with the remainder paid out over 10 equal monthly payments. This ends perhaps with March or April's payment. The other loan bucket seems to involve four individual loans bundled into one payment over ten years. Though being paid perfectly on time for perhaps the last four consecutive months, this bucket keeps growing with ongoing interest charges from each of the four loans. This really troubles me. I'm seeking options to stop the additional charges if possible.

    I am contacting you to see if you have guidance on: 1. How best to reasonably verify that all her individual alleged loans, debts, interest and charges were/are accurate? 2. How to determine which pigeon hole or holes did she plug herself into upon selecting her two repayment plans, whether either is best, and if not, whether viable options are available for course correction? 3. How best to clean up the damage to her credit history and scores. Consistent repayment progress has been made since last July, but I am so uncertain in terms of the validity of her "original bad debt" and how best to begin cleaning this all up with the credit bureaus. Have your addressed these matters in your videos and if so, in which ones? I am reasonably familiar with personal credit score improvement, but the student loan maze is an unfamiliar morass.

    Any direction would be appreciated…

  13. What's the difference between state versus federal student loans?How do I find out who have my state student loan?

  14. ya um I borrowed $5,000, it is know $50,000 I got my default, today, I'm 59 with no income. So you are no help to me.

  15. good info,
    just a question . I've been in default status and haven't made a payment or bothered to in a few years. I have received letters from a collection agency as well as it's on my credit. Will i still be able to do the option of making the 9 monthly payments in a row or would I have to get the payment schedule from the collection agency? Is it possible to fix my situation? You're right I have been trying to get a FHA loan but not able to due to the student loans.

    Thanks and Have a great day!!!!

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