A few things you should know about defaulted student loans

If you have let your student loans slide into default, you’re not alone. The rate of student loan defaults is rising across the county. (See the link at the end of this article for statistical information). Tough economic times have hit most Americans, making it difficult or impossible for many of them to make the monthly payments on their loans.

Help is available, but before we discuss solutions, here’s what you should know about defaulted student loans.

When a student loan falls into default, the Department of Education takes action against you. Often times, it will garnish your wages and your income tax refund, and even withhold social security benefits. The Department can and will take these actions without giving you any prior warning. One month you’re earning enough money to just barely get by, and the next month you aren’t. You and your family could have trouble even putting food on the table.

While the Federal government prefers wage garnishment, it may decide instead to sell your loan(s) to a collection agency. If this happens, it will have effectively given an independent organization with virtually no oversight or regulation free reign to demand payment from you. Often times, these agencies use dubious or completely unethical tactics to harass you and collect the money you owe.

Fortunately, you can get out of this painful situation. Many people with defaulted student loans have found success in the Federal loan rehabilitation program. By entering the program, wage garnishments and demands from collection agencies end. A Federal loan officer assigns you (an often high) monthly payment, which you must make in full and on time for 10 months, no exceptions. If you fulfill that commitment, your loan is moved out of default status, your original monthly payments are reinstated, and you regain the right to apply for the deferment and forbearance programs.

For the many people who can’t afford the payments required by the Federal loan rehabilitation program, there is another option: A private third-party loan consolidation and servicing company specializing in student loans that will end wage and tax refund garnishments and get the collection agencies off of your back, while helping you repay your defaulted student loans and rebuild your credit rating.

With a loan consolidation and servicing company, you refinance your student loan(s) at a new (sometimes higher) interest rate and get a lower monthly payment with a longer repayment term. (Avoid those companies that want you to agree to a variable interest rate, which could raise your monthly payments at any time.)

Like the Federal government, a loan consolidation and servicing company is adamant that you make your monthly payment in full and on time, no matter what. As the current recession proves, however, hard times happen to good people. So, choose a company that has a forbearance program that will help you to keep your loan repayment in good standing if you ever have a sudden and unexpected drop in income.

A defaulted student loan is a serious, and increasingly costly and painful, problem. With the help that a loan consolidation and servicing company provides, however, you can protect yourself and your family from wage garnishment and collection agencies, regain your financial security, repay your debt, and build a brighter future.

Reference-> Default rates rise federal student loans