When is a loan considered in Default and how can it be resolved?

Default

A loan is considered in default if you do not resolve delinquency, and that delinquency persists for at least 90 days.  Your school or Loan Servicer may execise their right to accelerate your loan balance.  Your school or Loan Servicer will give you notice of their intent to accelerate your loan balance.  When a loan is accelerated, the entire unpaid principal balance plus interest and fees become immediately due and payable.  All provisions for deferments and cancellation are lost. At this point your school or Loan Servicer may;

• Assign the loan to a collection department or agency in which additional collection charges up to 40% of your accelerated balance will be added to your loan
• Assign the loan to the Department of Education for further collection action which may include the interception of your federal tax refund
• Report the default to the credit bureau
• Report the default to the Federal Nation Student Loan Database, thus preventing you from obtaining any new federal financial aid

Resolving a Default

The Federal Perkins Loan Program has a provision that allows a borrower to rehabilitate a defaulted loan.  This Loan Rehabilitation program requires a diligent effort on the borrower's part.  To rehabilitate a defaulted loan, the borrower must negotiate a payment arrangement with the school, Servicer or Collection agency.  The borrower must then make the agreed upon payment each month on-time for 12 consecutive months.  At the end of the 12 months, if all payments were made on time, the loan is rehabilitated and:

• Credit Bureau history is cleared
• Outstanding collection fees are reduced to 24%
• Eligibility for future federal financial aid is re-establised
• A new payout period for the balance is computed