Posted by Navy federal student loans: The Biden Administration announced on November 22, 2022, that the US Department of Education is going to extend the suspension of most federal student loan repayments while its student loan debt collection agency is stalled in the courts. Payments will restart as follows:
● 60 days after the debt cancellation program is implemented,
● 60 days after the lawsuits are resolved, or
● 60 days after June 30, 2023, if the program has not yet been implemented and the litigation has not yet been addressed.
Furthermore, under Biden’s plan, borrowers who have defaulted on federal student loans can have their loans reinstated, any arrears removed, and access to various student aid advantages restored through the “Fresh Start” campaign. After the COVID-19 payment halt ends, the Fresh Start program will be extended for one year.
When you fail to make a payment on most debts, your account will default at that time or shortly thereafter. For example, if you fall behind on a credit card payment or a mortgage loan, the lender will usually notify you as quickly as possible that you are in default. Further the debt will be transferred to a to proceed with further actions.
However, in the case of federal student loans, default does not normally occur immediately. Most federal student loans become delinquent only after multiple missed payments.
While you won’t be in default right now, failing to make payments on your federal student loans carries substantial repercussions. Borrowers who fail to make student loan payments face harsh penalties from the government.
What Happens After You Miss a Payment on Your Student Loan?
Navy federal student loans: When a borrower fails to make a payment on a Federal Family Education debt (FFEL) or Direct Loan, the debt becomes delinquent. The servicer may contact you to discuss various repayment options.
While the new servicer may sound like a debt collection agency, it isn’t always. If you do not catch up, a debt collector will be involved later.
When your loan becomes delinquent, you can avoid default by requesting a deferment, obtaining a forbearance, or combining your loans. In addition, you can also contact a student loan debt collection agency to help with your debt.
What It Means to Default On Your Student Loans?
If your FFEL or Direct Loan payments are due monthly, you will be in default after 270 days (about nine months) of missed payments. If your payments are due less frequently than monthly, default happens after 330 days (approximately 11 months) of missed payments.
A Perkins loan, on the other hand, is in default the moment you skip a payment or breach any other term of the payment agreement.
What Happens if You Default on Student Loans?
While federal student loans typically are more liberal than most other loans in terms of default, the consequences of skipping on federal student loans are far more severe than those of most other debts.
Intercepting Tax Refunds to Repay Student Loans
The most common way for the government to collect unpaid student loan funds is to intercept tax returns. Every year, the federal government collects hundreds of millions of dollars in tax refunds from defaulted student loan borrowers without first obtaining a judgment.
And if you legitimately owe the money, stopping a tax refund intercept is very difficult.
Notification and defenses. Before the federal government claims your money, you will be notified, given the opportunity to study the loan records, and the ability to appeal this decision. Among the many defenses that could prevent a tax rebate intercept are:
● Your debt has been settled.
● It isn’t your loan.
● You and the loan holder reached a repayment plan, and you’re making the needed payments.
● You have declared bankruptcy and either the case is still pending or the debt has been discharged.
● The borrower is no longer alive.
● The debt is unenforceable, maybe owing to forgery.
● You qualify for a student loan discharge, similar to a closed school discharge.
Navy federal student loans: Avoiding a tax refund intercept. If your tax refund is minimal, an intercept will cost you less. To keep your tax refund as small as possible, raise the amount of money you get with your salary over the year. Assume you received a $1,440 a refund of taxes last year. This year, you might want to urge your employer to deduct $120 less from your paycheck. Use the IRS withholding calculator to determine how much you should ask your employer to withhold.
Social Security Garnishments to Repay Student Loans
The Debt Collection Improvement Act of 1996 (31 U.S.C. 3716(c)(3)(A)(i)) authorizes federal government agencies to deduct Social Security income in order to collect debts such as
student loans. The government must, however, allow you to keep a certain amount. The Act specifically exempts benefit payments reaching $9,000 over a 12-month period ($750 monthly), and the government cannot seize more than 15% of your benefit.
Navy federal student loans: Unlike practically every other type of debt, there is no statute of limitations on collecting federal student loans. So, even if you went to school 20 or 30 years ago, the government can still try to collect your loans.
However, if you are fully and permanently handicapped, you may be able to have your federal student loans cancelled. Many people are unaware of this alternative, and their Social Security benefits are nonetheless deducted.
Your Paycheck Garnished
The government has the authority to confiscate a restricted amount of a student-loan debtor’s wages (“garnish”). Without going to court, it can consume up to 15% of your discretionary income.
However, you are permitted to keep an amount equivalent to 30 times the federal minimum wage per week. You may object to wage garnishment in the same way that you do to tax refund offset.
Loans Placed With a Student Loan Debt Collection Agency
Navy federal student loans: If you fail to make payments on a federal student loan, the Department of Education may assign your account to a debt collector. Debt collection agencies are paid fees and commissions based on the amounts you send them.
Every payment you make on your student loan contributes to the collection fees. For example, if a collection agency charges 25% and you pay $1, your loan balance will be reduced by only $.75. The remainder ($.25) will be used to cover collection costs.
If your payment does not cover the fee as well as the full interest accruing on the loan, your loan balance will quickly climb.
You Get Sued
Navy federal student loans: The government might sue you. Again, unlike other debts, the law doesn’t provide a time limit (a statute of limitations) for a lawsuit to collect federal student loans.
You’ll Lose Eligibility for Deferment, Repayment Plans, Probably Forbearance
Even if you are only late, you are still eligible for deferral and several forms of repayment arrangements. However, if the loan goes into default, you will lose this eligibility.
A delinquent loan is eligible for forbearance, and under federal law, a servicer has the option to grant forbearance on a defaulted debt. (34 CFR 682.211(a)(1), 34 CFR 685.205(a)(8)). Unfortunately, the Department of Education disagrees and claims that forbearance is not accessible after default.
How Does Defaulting on a Student Loan Affect Your Credit?
For federal student loans, the servicer will normally not report your loan to credit reporting bureaus as late unless it is more than 90 days late. (However, if you have private student loans, the servicer will most likely report it as late after 30 days.) Your credit scores will suffer as a result of this reporting.
Navy federal student loans: A default will typically appear on the credit reports for seven years. However, if you rehabilitate your loans, the credit reporting organizations will delete any references to the default from your credit files. However, your late payment history prior to default will remain on your credit reports.
Getting Help
Navy federal student loans: Don’t freak out if you’ve missed a few payments on a federal student loan. You should have enough time to prevent going into default mode. You may be able to request a number of deferments, forbearance alternatives, or consolidate your defaulted student loans. In addition, under certain conditions, federal student loan holders may be eligible for loan forgiveness.
To learn more about your choices, contact a or a consumer protection attorney who specializes in student loans.