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What You Need to Know About Federal Student Loans

Facing overwhelming debt can be scary, making it no surprise that student loan debt is a primary source of stress for many people. Knowing your options will help alleviate that stress and help you regain control of your finances. In certain situations, federal student loans can be forgiven, including public service loan forgiveness, teacher loan forgiveness, closed school discharge, and total and permanent disability discharge. More commonly, though, borrowers utilize other options such as refinancing or changing payment plans.

Start by Contacting Your Loan Servicer

If you are concerned about your ability to make your student loan payment, the first step to take is contacting your student loan servicer.  Your student loan servicer can help you adjust your repayment plan and due date. This is a free service regardless of what plan you originally selected or were assigned when you first began repaying your student loans. You may also want to discuss deferment or forbearance with your student loan servicer, both of which allow you to temporarily suspend your loan payments. Before choosing one of these options, however, it is recommended that you try a repayment plan because interest continues to accrue during periods of deferment or forbearance, and progress towards potential loan forgiveness halts.

Know the Pros & Cons of Each Option

The U.S. Department of Education has a loan simulator that will tell you which repayment plans you might be eligible for as well as how those plans might affect your monthly payments and overall balance.  Some repayment plans allow you to lower your current payments and pay more in the future, make payments based on your income, or extend your payment timeframe so that your monthly payments can be lowered.

But What if You Have Already Missed Payments?

If you have already missed a payment, knowing where you stand is important. Simply missing a payment does not put you in default of your federal student loan. There is an important distinction between delinquency and default. Your loan becomes delinquent the day after you miss a student loan payment, and delinquencies longer than 90 days are reported by your loan servicer to the three major credit bureaus which can negatively affect your credit score. When your loan remains unpaid, you risk going into default. The amount of time before your loan goes into default depends on which type of federal student loan you have. Typically, federal student loans are considered in default if scheduled payments are missed for 270 days, but some types of loans such as the Federal Perkins Loan allow the holder to declare the loan in default after the first missed payment.

Although 270 days seems like a long time, it is important to examine your options early in delinquency because entering default on your loan can have serious repercussions, including accelerating your loan (which means the federal government can demand immediate repayment of the full outstanding balance of your loan) and loss of the opportunity to take a deferment, to enter forbearance, or to change repayment plans. In addition, your loan holder can take you to court and garnish your wages, all of which can harshly impact your credit score and your income.

If You Have Already Defaulted on Your Loan, There is Still Hope

Should you fall into default on your federal student loan, there are three primary avenues available to get out of default: repayment in full, loan rehabilitation, and loan consolidation. Repaying a student loan in full is not generally a valid option for most individuals, so the most practical options are loan rehabilitation and loan consolidation. Both options have pros and cons, but the key difference between the two includes the possibility of removing the record of default from your credit history and application timelines. Loan rehabilitation can take several months to complete, but once it is complete the record of the default can be removed from your credit history which can improve your future financial health. Loan consolidation is a quicker application, but it does not allow for removal of the default from your credit history, and there is often less flexibility when choosing a repayment plan.

Your student loan servicer can help you decide which is right for your situation, but understanding where you stand and what paths are available to you is the best first step you can take in regaining financial control. An attorney can also help you further by helping you complete your loan consolidation application and helping you put a plan in place to rehabilitate your loan after speaking with your loan servicer.

At the time of writing this blog article, the White House has extended the previously instituted moratorium on student loan payments through August 31, 2022.  The moratorium suspends loan payments, institutes a 0% interest rate, and stops collections on defaulted loans. If you are concerned about changes to your payments after the moratorium ends, your loan servicer can provide an estimate of your payments and a new due date.  For more information about Federal Student Loans, check out the resources linked at the end of this article.

Resources and References

To read more about the situations in which federal student loans can be forgiven, visit:

Visit this link to learn more about how to change your repayment plan:

To learn more about the potential repercussions of defaulting on your loan, visit:

For more information on how to get your loan out of default, visit:

Disclaimer: The Law Group of Northwest Arkansas PLLC (TLGNWA) provides general information about a variety of legal issues on this website as a public service. Information contained herein should not be considered legal advice on any specific matter. The use of information and reference links contained in this website do not constitute contractual, de facto, implied or any other form of attorney-client privilege or relationship. TLGNWA is not responsible for the use of information, forms, links, or documents contained in this website.

Due to the frequency and speed of changing laws, no guarantee is made as to the current validity or applicability of the information contained herein. Though we try to update information often, we recommend that readers with questions investigate current law or contact TLGNWA directly through our contact form or by calling (479) 334-3411.