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How to Increase What You Owe by Defaulting on Your Federal Student Loans

There are many bad things that can happen to you if you default on your federal student loans, including Administrative Wage Garnishments (AWGs), tax refund offsets, and Social Security offsets.  But did you know that defaulting can cause your loan balance to go up?

Default Fees

When you default on a loan, it is sent to a debt collector for handling.  When this happens, two things make you pay more on your loan.  The first is the default fee that is assessed and is equivalent to 18.5% of your outstanding balance.  That's right!  If you defaulted owing $30,000, they will pile on another $5,550!

Collection Fees

But that's not all!  Debt collectors are entitled to a collection fee, which can be as much as 25% of the balance!  The difference between this and the default fee is that the collection fee is taken from payments made by you to the debt collector.

So if the fee is 15%, then that percentage is taken off the top from each payment you make before any money goes towards the balance owed!  This continues until you are able to get out of default either through rehabilitation or consolidation.

Even trying to stay out of default can make your balance go up!  If you enter into a forbearance, or a deferment with an unsubsidized loan, interest will accrue while you are in the deferment or forbearance and capitalize into principal!

So What Do I Do?

All of this should make it clear that default is something to be avoided at all costs. If you live in southern New Jersey, and you are nearing default (or have already defaulted), contact me right away! I may be able to be of assistance. Feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.

If you would like more information about student loans, you can dowload my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.

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