Financial aid implications and options
A student loan is in default if the student has not made payments for 270 days. One primary consequence of a defaulted student loan is loss of eligibility for future student loans or any type of state or federal student aid. The default is reported to all national credit bureaus which generally eliminates the option of credit-based alternative loans.
If a student is having trouble making student loan payments they should contact their loan servicer immediately. It is possible that the student may qualify for one of the types of payment relief, deferments and forbearances.
Students in default should take the following steps:
- Contact the billing agency.
- Explain the situation fully.
- Ask what options are available.
- Demonstrate a willingness to repay the loan.
- Determine if the default is in error.
- Determine if any deferments or forbearance were available for the time period when scheduled payments were not made.
- Ask for a statement indicating all payments.
- Ask for confirmation of the start and end dates of any deferments and forbearances that have been applied to the loan account.
- If the loan servicer has incorrect information, provide documentation to correct.
- STAY IN TOUCH WITH THE LENDER OR COLLECTION AGENCY.
Options for getting out of default:
- Pay loan in full.
- Rehabilitate the loan. The student and loan holder agree on a reasonable and affordable payment plan. In most cases, the student is asked to sign a loan rehabilitation agreement. Once 12 consecutive payments have been made, the loan is rehabilitated and the default status is removed. The student regains eligibility for student aid. National credit bureaus will be notified that the loan is no longer in default.
- Consolidate the loan.
A defaulted loan may be included in a consolidated loan if the student has made “satisfactory” payment arrangements. This generally involves making three voluntary, consecutive on-time payments. Consolidating creates a new loan which is in good standing. Derogatory information at credit bureaus is updated. Under the terms of the new loan the student has the right to payment relief if applicable and regains eligibility to receive future student loans.
Most students can resolve a loan default in three months. NLU students in default of a student loan must make arrangements to pay past due tuition and fees before beginning a new term. They must also select to pay in full or make a one-third payment and sign a promissory note selecting the deferred payment plan before starting a new term. Some students may need to sit out for a term while they make three payments, consolidate the loan, regain loan eligibility, and then resume their studies at NLU.