What should you do if your loan goes into default?
Updated on July 22, 2020
Defaulting on student loans is every graduate’s worst nightmare. Going into default can wreck your credit score. You could even have your wages garnished and find it harder to get loans in the future. However, if you find yourself in this situation, there are ways that you can mitigate the damage. Here are some ways that you can handle a student loan that’s in default:
Pay back the loan if you can
If your loan goes into default, you will owe the entire balance of the loan, which is impossible for most graduates. However, it may be possible to use debt consolidation to pay off the loan that’s in default. Loans from debt consolidation programs often have significantly lower interest rates than student loans, and this will reduce your monthly payments.
File for bankruptcy
If your student loan goes into default, it may be a good idea to file for bankruptcy. While filing for bankruptcy will not necessarily lead to student loan forgiveness, it may relieve you of other financial burdens that have been keeping you from paying your student loans. If you can show the court that you are unable to meet basic living expenses and make student loan payments, it may be possible to get your student debt forgiven.
Consider loan rehabilitation
Loan rehabilitation is a process that will take several months. However, you only get one chance at it, which means that you need to be sure that you can make payments after your loan has been rehabilitated.
Loan rehabilitation is the best option for people who have been temporarily unable to make payments due to a period of unemployment or another financial problem that has been resolved. If you anticipate ongoing problems that prevent you from making payments, loan rehabilitation probably is not the answer for you.
Seek professional advice
Advice from a financial adviser can help you find ways to save money and make payments on your student loan. In addition, they can help you get your loan out of default and improve your credit score, which can make it easier to obtain financing in the future.