With just about any other loan, you have defaulted if you miss one payment. But did you know that you would have to miss at least nine (9) payments on your federal student loans before you are held in default? Yes, that's right. You must be more than 270 days in arrears (9 months) to default; before that, you are merely "delinquent." But what do you do?
There are two ways to get out of default, and each has it's pros and cons.
Rehabilitation. You have the right to "rehabilitate" your loan out of default. This is done by negotiating a reasonable and affordable monthly payment based on your total financial circumstances. Once rehabilitation is complete, the default notation on your credit for the loan is removed, and it is if you were never in default! Thus this option is better for your credit.
Consolidation. This is the student loan equivalent of a refinance. You pay off the defaulted loan by a new one through the Department of Education's Direct Loan program. No monthly payments are necessary first if you go into an income based repayment plan afterwards. Otherwise, you must make three payments first before you are out of default. There are two downsides:
- You cannot consolidate out of default if there is an Administrative Wage Garnishment (AWG) in place; and
- It does not remove the default from your credit, so your scores to not improve
For more information on curing default, check out this article.
What Do I Do Next?
If you live in New Jersey and have defaulted on your federal student loans, you need to act right away! I can be of assistance. Just download this questionnaire, fill it out, and then fax it to me at 856-686-9911 or e-mail it to me. I will then review it to determine if I can be of assistance and contact you to discuss representation.