Have you made a federal student loan payment in the last three months? About 11% of federal student loan borrowers have not and are therefore in default. That default rate only represents the borrowers entering repayment.¹ More than 8.1 million Americans are behind on federal student loan payments. If you risk facing this dilemma, consider these possibilities.
You could rehabilitate your loan. Rehabilitation of a Direct Loan or Federal Family Education Loan (FFEL) Program involves making nine monthly payments within a ten-month period; for a Perkins loan, the period is nine months. Once rehabilitation is complete, the loan is out of default and you are again eligible for different repayment options, forbearance, deferment, loan forgiveness, and additional federal student aid.²
You could consolidate your loan(s). This move transfers your debt into a new fixed-interest-rate Direct Consolidation Loan, which you can repay through an income-based plan. Alternately, you can make three straight full monthly payments on time on a defaulted loan and then consolidate it, which allows you to repay the resulting Direct Consolidation Loan under any repayment plan for which you qualify.²
Sources/Disclaimers: This material was prepared for Horizon Wealth Management and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.
¹freep.com/story/news/local/Michigan/2016/10/02/rate-student-loan-defaults-slowsmichigan/91330184/[10/2/16]
²studentaid.ed.gov/sa/repay-loans/default/get-out[1/15/17]