It damages your credit score and can make it difficult for you to get a credit card, car loan, or mortgage. This is well before you're officially in default. Credit score: Late payments on federal student loans can be reported to the three major credit bureaus 90 days after you're late.Federal student aid: You are no longer eligible for federal student aid after your loans go into default.You also lose access to income-driven repayment plans. Flexibility: Defaulting on federal student loans means giving up the chance to choose your own payment plan or to switch student loan repayment plans. Federal benefits: Defaulting on federal student loans means losing access to federal protections such as deferment and forbearance.Acceleration: The entire unpaid balance of your loan plus all interest you owe becomes immediately due when your federal student loans are in default. Otherwise, the default will be restored at the end of the one-year period. "Borrowers will have one year to choose a repayment plan and start making payments under the repayment plan. "When repayment restarts on federal student loans, the Fresh Start initiative will return all defaulted federal student loans to a current status, remove the default from the borrower's credit history, and remove other negative information relating to the loans from the credit history," Kantrowitz says. The Fresh Start initiative goes into effect once the COVID-19 federal student loan repayment pause ends on December 31, 2022. To be eligible, your defaulted loans must be Federal Direct Loans, Federal Family Education Loans, or Perkins Loans.
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