Consequences of Defaulting on a Direct Loan

A direct student loan is money borrowed from the United States Department of Education by a student of a parent of a student in order to fund a post-secondary school education. As it is with any type of loan, defaulting on a direct student loan comes with consequences and efforts should be made to avoid such a situation.    

The Consequences

If a borrower faces difficulties while attempting to repay a loan, the Department of Education offers many options to allow a borrower to avoid default.  The borrower can renegotiate a repayment plan, can defer payments, or can request forbearance. Default occurs only after a borrower misses a payment, receives a letter of notification of the missed payment, receives many warning notifications, and still fails to pay. If a borrower still defaults, according to the Department of Education's website, the consequences of default include the following.

  • The borrower must immediately repay the entire amount of the loan.
  • The Department of Education can sue the borrower.
  • The Department of Education can take part of your wages directly from your employer. The Department can also take all of your federal refunds.
  • The borrower can be denied a professional license.
  • The Department of Education can notify credit companies.  This means that the borrower's credit history will be tarnished.
  • The borrower will not be eligible to receive other Federal loans.
  • The borrower will have to pay for collection services, an attorney, and any court costs.
Avoid Default

The Department of Education is intent on keeping borrowers away from defaulting. There are many repayment options that a borrower can sign up for at the time that he or she applies for a loan. The borrower should pick the repayment plan that he or she will most realistically be able to meet. Depending on the type of plan, the borrower has anywhere from 10 to 25 years to fully repay the loan. Payments can be made as a fixed monthly amount, an increasing monthly amount, or can depend on the income that you are making at any given point. In addition to the maximum 25 years for repayment, years spent in deferment of with forbearance can be added to the term of the loan. If a borrower defaults on a direct student loan, he or she can apply for consolidation, forgiveness, or cancellation. There are many companies, which can be found on the internet, that offer services to solve default issues.

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