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I am delinquent on my student loan payment and would like to lower my monthly payment amount to an amount that works better for my budget. Can I change my repayment plan?

December 6, 2010 9:59 pm

Student Loan Solutions will work with borrowers to develop a repayment strategy that will fit an individual’s financial needs and goals. If you are delinquent on your student loan(s), before making any changes to your repayment plan, you will first need to bring your student loan(s) current. This can be done by making a payment or requesting deferment or forbearance, if applicable, to cover the delinquent payment(s).

What does it mean to be in default?

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Failure to repay a loan according to the terms agreed to when you signed a promissory note. For the FFEL and Direct Loan programs, default is more specific—it occurs if you fail to make a payment for 270 days if you repay monthly (or 330 days if your payments are due less frequently). The consequences of default are severe. Your school, the lender or agency that holds your loan, the state and the federal government may all take action to recover the money, including notifying national credit bureaus of your default. This may affect your credit rating for as long as seven years. For example, you might find it difficult to borrow money from a bank, to buy a car or a house. In addition, the Internal Revenue Service can withhold your U.S. individual income tax refund and apply it to the amount you owe, or the agency holding your loan might ask your employer to deduct payments from your paycheck. Also, you may be liable for loan collection expenses. If you return to school, you’re not entitled to receive additional federal student financial aid. Legal action also might be taken against you. In many cases, default can be avoided by submitting a request for a deferment, forbearance, discharge or cancellation and by providing the required documentation.

What happens to a person who cannot pay a loan off when it becomes delinquent and goes into default?

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The interest on this loan will begin to pile up month after month. This means you will end up owing more and more money. Your credit score also becomes tarnished. Filing bankruptcy is not an option. Currently, the rules of bankruptcy state that student loans cannot be discharged in bankruptcy like credit cards can. The federal government is not your average debt collector. They will find you and collect on their debt. They can and will:

  • Garnish your wages
  • Take your tax refunds
  • Deny you Federal Student Aid if you go back to school
  • Prevent you from getting certain jobs
  • Refuse to discharge your obligation in bankruptcy
  • Give you bad credit
  • Potentially sue you for back payments

What repayment options are available on my federal loans?

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The federal government provides flexible repayment plans. Each plan has different criteria and in most cases every plan is based on the borrowers income. Please note: Selecting a repayment plan that offers interest-only payments or a repayment plan that lengthens the repayment term (e.g., extended repayment), or deferment and forbearance that suspends your payments are likely to increase the total cost of repaying your loan(s). The lower your payment amount, the longer it will take you to repay your loans and the more total interest you will pay.

See All Repayment Plans

How often can I change my repayment plan?

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When in active repayment on your loans, you may change your repayment plan from one repayment option to another whenever you want. Please note, the availability of some repayment options may vary, depending on the outstanding loan balance, interest rate, and/or repayment term remaining. You may prepay your loan at anytime without penalty, regardless of repayment plan.

What is deferment?

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A deferment is a temporary suspension of loan payments for specific situations such as re-enrollment in school, unemployment, military service or economic hardship. To qualify for a deferment, you must meet specific eligibility requirements.

To apply for a deferment, complete and submit the appropriate form.

What is an economic hardship deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1214HRD.pdf

What is an in-school deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1214SCH.pdf

What is a parental leave deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1214PLWM.pdf

What is an unemployment deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1214UNEM.pdf

What is a working mother deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1214PLWM.pdf

What is an public service deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1214PUB.pdf

What is a military deferment?
http://ifap.ed.gov/dpcletters/attachments/GEN1017AttachPostActDefReqMilServDefer.pdf

What is an in-school deferment?

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An in-school deferment is for borrowers who are attending an eligible school as either a full-time or at least half-time student. There is no maximum time frame for this deferment. You must have an authorized school official certify your dates of attendance and enrollment status.

What is a military service deferment?

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An active duty military deferment is available to borrowers in the Direct, FFEL, and Perkins Loan programs who are serving on active duty during a war or other military operation or national emergency. Deferment is also available while performing National Guard duty during a war or other military operation or national emergency and, if the borrower was serving on or after Oct. 1, 2007 for an additional 180-day period following the demobilization date for the qualifying service.

What is a post-active duty student deferment?

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A Direct, FFEL, or Perkins Loan borrower who is a member of the National Guard or other reserve component of the U.S. Armed Forces (current or retired) and is called or ordered to active duty while enrolled at least half-time at an eligible school, or within six months of having been enrolled at least half-time, is eligible for a deferment during the 13 months following the conclusion of the active duty service, or until the borrower returns to enrolled student status on at least a half-time basis, whichever is earlier.

How do I qualify for a deferment?

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The most common loan deferment conditions are enrollment in school at least half-time, inability to find full-time employment (for up to three years) and economic hardship (for up to three years).