So, you’ve defaulted on your loans. Now what?

Let’s start off with the basics; most of what we’ve talked about so far has been advice on how not to default on loans. But inevitably, some of you will default. So, what do you do when that happens? Let’s start at the beginning.

1. What does it mean to default on a loan?

Defaulting just means that you have gone 270 days (9 months) without making any loan payments.

2. What happens when you default?

Well, for starters, it takes some of the more appealing repayment options off the table. That includes the ability to apply for deferment, forbearance, and in most cases, refinancing as well. It also means that the government can seize any and all of your tax returns, and that your credit score will fall dramatically.

3. How do you fix it?

Digging yourself out of default isn’t easy. But it is possible. Beginning on July 1, the government instituted a new program that allows borrowers to emerge from default on their federal student loans through 9 consecutive loan payments over the course of 10 months. These payments come out to 15% of a family’s adjusted gross income. The calculator with the algorithm can be found here: www.asa.org/repay/calculators/rehab/default.aspx

While the program is designed to make payments “reasonable and affordable” many participants are still complaining that they find the prices to be the opposite. This is still a very new program, and it obviously has some kinks that still need to be worked out, but it seems like a promising idea for people who have defaulted on their student loans and find themselves in serious financial trouble.

Read more here: http://www.columbian.com/news/2014/jul/25/new-plan-on-student-loans-helps-repayment/