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MCC Daily Tribune Archive

What does it mean to default on a Federal Student Loan?


Please tell your students: To default on a Federal student Loan means the failure to repay a loan according to the terms agreed to when you signed a promissory note.

For loans received through the Federal Direct Loan Programs, a student is considered to be in default when they fail to make a payment for 270 days.

The consequences of default are severe:

1.   Your school, the lender or agency that holds your loan, the state, and the federal government may all take action to recover the money, including notifying national credit bureaus of your default. This affects your credit rating for a long time. For example, you might find it very difficult to borrow money from a bank to buy a car or a house.

2.   In addition, the Internal Revenue Service can withhold your U.S. individual income tax refund and apply it to the amount you owe, or the agency holding your loan might ask your employer to deduct payments from your paycheck.

3.   Also, you’re liable for loan collection expenses.

4.   Students who are in default on their federal student loans are ineligible to receive federal student aid (Pell Grant, SEOG, FWS, & Student Loans) until the default status is cleared.

In many cases, default can be avoided by submitting a request for a deferment or forbearance.

To clear a defaulted status, the student should contact their loan servicer to determine what steps can be taken.

Ramon L. Rodriguez
Financial Aid
02/12/2013