One of the good things about the loan is that it allows multiple repayment options. But to counter this only good is the assistance provided by the lender after the loan has been availed. So, when you are not able to repay the monthly amount of the loan, your loan can become delinquent, and you may be charged with late fees. Even in this scenario, you may be able to save yourself from a loan default. Take the proper steps and contact the loan servicer immediately.
Here are some of the steps to avoid default:
First advice would be to avoid default if possible. For this read all the documents related to your loan agreement carefully. Also, understand the type of loans you are paying. A simple financial tip that everyone should know is that you should not borrow more than what you are required or need and more than what you yourself are expected to pay.
Another option to get out of defaulting your loan is the loan rehabilitation. There are different types of loans like direct loans, Perkins loans, FFEL, parent PLUS loans, etc. To make payment for a defaulted FFEL or direct loan, you should agree to the following things in writing: For a loan period of 10 months, make 9 monthly payments. Make this payment within the period of 20 days from the due date. Under this rehabilitation agreement, the initial payment will be same as 15% of your discretionary income. Your payment could be as low as $5, but for that, you need to provide the proper documents of your income. You should not forget to ask for the lower payment.
Federal Perkins loan:
When you have a defaulted federal Perkins loans, you can rehabilitate by making a monthly payment within the 20 days of your due date. This should continue for a period of 9 months. The monthly payment that is required by you to pay is decided by the school for which you have taken out the loan for.
Another option to save yourself from loan defaulting is to consolidate your student loan into a direct consolidated loan. This will allow you to pay off more than one federal student loan at a fixed interest rate. To consolidate the federal student loan into a direct consolidated loan, you should do: Agree to pay the direct consolidated loan under income-driven repayment plan or before you consolidate it to make three consecutive, full monthly, on-time payments on the defaulted loan.
Other loan types:
Defaulted plus loan- If you have obtained a loan for your child as a parent and are required to consolidate a defaulted PLUS loan, then you can only choose the income contingent repayment plan as the income-driven plan.
If you choose the other option of making timely, voluntary, full monthly payments than you can repay the direct consolidated loan under the repayment you are eligible for.