I Defaulted On My Student Loans Now What?

June 9th, 2010 by Reed Allmand

Many debtors graduating from college are mired in unemployment which is making them unable to repay their student loans and other debts.  If a debtor is more than 270 days late on their student loan payment, they are considered in default.  So what should a debtor do if they have defaulted on their student loans?

1. Determine if you have a private student loan or a federal student loan.  While federal student loans offer flexible repayment plans and even deferments, private student loans have less flexibility; but are still often willing to negotiate with the debtor.
2. If a debtor has federal student loans they should contact their lender to see if they can get a  deferment or forbearance if they are unemployed.  Federal student loans offer generous deferment opportunities which can be a credit rating saver for recent graduates. If a debtor has private student loans, they may be able to negotiate a lower payment during unemployment and they may be able to negotiate a deferment depending on the policies of that individual lender.
3. If a debtor is employed but still doesn’t make enough money to repay their student loans, federal student loans offer income contingent repayment plans that can significantly reduce a debtor’s monthly payments.  Most private student loan lenders do not have income contingent repayment plans; but they may offer a temporary reduction in a debtor’s monthly payments.
4. If your high credit card debt load is preventing you from repaying your student loan debt, you may want to consider bankruptcy.  Bankruptcy may offer the debtor an opportunity to discharge their unsecured credit card debt and redirect their income to repaying their student loans. And if their student loans actually create an undue hardship, they may be able to discharge their student loans in bankruptcy.  However, discharging student loans in bankruptcy is difficult to do.