On-time repayment of your student loan is critical.  It is also a great way to develop a good credit history, which follows you wherever you go and whatever you do.

Delinquent payments are reported to a national credit agency and will damage your credit report and your future ability to borrow.

Your lender or guarantor can provide you with options if you are having difficulty making payments.

consequences of default

  • Suspension of university services;
  • Loss of eligibility for any additional federal, state and university financial aid;
  • Loss of the option to make monthly payments; the full amount of your loan becomes immediately due and payable;
  • Adverse credit history;
  • Tax-offset and wage garnishment;
  • Loan acceleration;
  • Write-off or collection agency action, which can lead to an increased loan payoff amount;
  • Late fees and collection costs;
  • Litigation, which can lead to an increased loan payoff amount;
  • Suspension of professional licenses;
  • Increased payment amounts;
  • Loss of deferment and forbearance options.

preventing defaults

Be proactive! It is crucial that you contact your lender immediately if you are having difficulty making payments.

Ombudsman

The Office of Student Financial Assistance (OFSA) Ombudsman can help.  The OSFA Ombudsman works with student loan borrowers to informally resolve loan disputes and problems. 
Customer Service Number: (877) 557-2575
Online: www.ombudsman.ed.gov

regaining financial aid eligibility

You must fully repay, consolidate or establish satisfactory repayment arrangments for all defaulted loans before you can become eligible for additional financial aid.

Establishing Satisfactory Repayment Arrangements

To establish satisfactory repayment arrangments on a defaulted Federal Stafford or PLUS Loan, you must work with your lender to set up a reasonable and affordable payment plan and make at least six (6) consecutive on-time monthly payments.

  • Review your budget to determine how much you can pay per month.
  • Contact the collection agency to arrange a "reasonable and affordable" payment plan.
  • Write a letter detailing your proposed monthly payment plan and include supporting documentation.  Make a copy for your records.  Send the letter via certified mail with return receipt requested.
  • Be sure to read the agreement you made with the collection agency BEFORE signing.
  • Start your monthly payments.
  • Do not be late or miss a payment. If you are late or miss a payment, you will lose your one-time only chance to rehabilitate your defaulted loan by making payments.

Once six (6) consecutive on-time monthly payments have been made, you may request a letter from your loan holder verifying that you have made satisfactory repayment arrangements on your loan and that you have regained Title IV financial aid eligibility. You must submit a copy of the letter to the Financial Aid Office. Your USC financial aid eligibility is reinstated beginning the semester in which you regain eligibility for Title IV aid and is not retroactive to prior semesters.

You must continue to make payments on your loan. Once you have reached nine (9) consecutive monthly payments, your loan is considered to be "rehabilitated." It will no longer be in default and can be sold.  Repayment will revert to a 10-year standard repayment plan. The default notation will be removed from your credit report. This does not necessarily mean, however, that your credit report is back to normal, as the delinquencies leading to the default could potentially remain on your record for up to 7 years.

Loan Consolidation

Consolidation is the process of combining one or more eligible loans into a single new loan. If you consolidate your defaulted loan it will be considered "paid in full." For more information, visit www.loanconsolidation.ed.gov.

Benefits to consolidating your loans to cure the default(s):

  • Up to three (3) "reasonable and affordable payments" are needed for your defaulted loan to become eligible for consolidation.
  • Once you your defaulted loan(s) is/are consolidated, you will become eligible for new loans, grants and deferments.
  • The default notation will be removed from your credit records, and you will no longer be subject to tax offsets, garnishments, or other collection efforts.

Once your loan(s) is/are consolidated, you may request a letter from your loan holder verifying that your defaulted loans have been paid in full and that you have regained Title IV financial aid eligibility. You must submit a copy of the letter to the Financial Aid Office. Your USC financial aid eligibility is reinstated beginning the semester in which you regain eligibility for Title IV aid and is not retroactive to prior semesters.

 
 

 

 

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