Defaulting on a Loan

What is default?
Default occurs when a borrower becomes past due in making a payment on his or her loans.

Maintaining a good credit history is an important responsibility of any borrower and you must develop a habit of meeting your payment schedule.

If facing a large amount of debt, you might be tempted to skip or delay some of your student loan payments. Your loans have been reported to a national credit bureau and are treated like any other form of credit. Remember, a poor credit report will negatively affect your financial reputation for many years; it could keep you from obtaining a car, a mortgage or even a credit card. Moreover, your report could be requested and used as a basis for hiring by your employers, or it could even be used by property, casualty and life insurance companies as a basis for refusing to underwrite your personal property. Therefore, it is most important to do all you can to make your loan payments in a timely manner.

How will I know if I'm in danger of defaulting?
If you miss a payment, your lender will send you a letter reminding you that your payment is late. If your account remains past due, the lender is required to send you warning notices to remind you about your obligation to repay your loans and of the consequences of default.

If you fail to make loan payments on time or if you default on your loans, the consequences are serious:
  • You will no longer be able to make easy monthly payments.
  • You will lose your deferment and forbearance options.
  • You will not be eligible for further federal or institutional student financial aid.
  • Your school academic transcripts may be withheld.
  • Your loan may be turned over to a collection agency.
  • Your loan will be reported as delinquent to credit bureaus, damaging your credit rating.
  • The federal government cannot take state refunds. The state government can take your state tax refund.
  • Your total debt may be increased by late fees, additional interest, court costs, collection fees, attorney's fees and other costs.
  • You may not be able to work for a State of Illinois (or other state) Agency.
  • Your employer can garnish part of your wages and give them to the federal government.
  • Your car and other property can be repossessed and sold to pay the loans.
  • The federal government can sue you.
Don't let this happen to you!

Remember, if you're having trouble making your payments, call your lender or school. There are a number of options that may be available in circumstances of financial hardship, such as special payment plans or loan forbearance, which is an arrangement to reduce or postpone monthly payments for a specified period during which interest still accrues. In any case, your lender will work with you to help you avoid the serious consequences of default.

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