If you don't repay your loan on time or according to the terms of your promissory note, you may go into default. Student loan default occurs when you fail to make payments to your lender and your loan becomes more than 270 days delinquent. During the delinquency period, your loan holder will make repeated efforts to locate and contact you about repayment. If your lender's efforts are unsuccessful, steps will be taken to place the loan in default and to turn the loan over to KHEAA-Alabama. Default is serious, and KHEAA-Alabama will "accelerate" your defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.
If you default, you may also face these consequences:
- You'll lose your rights to deferment, forbearance, and repayment options.
- You'll lose eligibility for other student aid and assistance under most federal benefit programs.
- Collection charges of up to 24.34% will be added to the amount due, and your loans will be assigned to various collection agencies until you make full payment.
- Your state and federal tax refunds may be withheld.
- Your wages may be garnished.
- A lien may be placed on any property you own.
- You'll have a negative credit report for at least seven years, which can make it very difficult for you to get a job or buy a car or a home in the future.
- You may be sued.
Obviously, you don't want to let your loan go into default. However, should this happen there are now many ways to repay your defaulted student loan, and certain programs can even remove your loan from its defaulted status. Determining which repayment option is right for you depends on what your objective is.
Reasonable and Affordable Monthly Payments
KHEAA-Alabama will accept regular monthly payments that are reasonable to the agency and affordable to you. You should call us at 1.800.928.4241, and one of our account representatives will assist you in determining a repayment amount that is right for you.
Reestablish Eligibility for Federal Student Aid
Basically, your options are:
- Repay or satisfy the loan in full.
- Make six agreed-upon monthly payments over a six-month period. Your payment amount must be approved in advance by KHEAA-Alabama. Every qualifying payment must be timely (received before the due date), and you cannot make all six payments as a single lump-sum payment. Once your eligibility to receive additional federal financial aid has been restored after making six consecutive monthly payments, you must continue to make timely monthly payments to maintain your eligibility or it will be permanently lost until the debt is resolved entirely. You may qualify for this program only once.
- Consolidate your loan through the FFEL loan consolidation program or the William D. Ford Direct Loan Program.
Since defaulted student loans have no statute of limitations for enforceability, you would remain ineligible for additional federal financial aid until you complete one of the options mentioned above.
Improve Your Credit Score/Rehabilitation
Your defaulted loan will be reported to credit bureaus for seven years from the date of default. To clear the default from your credit record, you may want to consider rehabilitating your defaulted loan. To rehabilitate a FFEL, you must make at least nine (9) full payments of an agreed amount within twenty (20) days of their monthly due dates over a ten (10) month period to KHEAA-Alabama. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine (9) payments. Once you have made the required payments, your loan may be purchased by an eligible lending institution.
Advantages of rehabilitation include:
- Your loan will no longer be considered to be in a default status.
- The default status reported by your loan holder to the national credit bureaus will be deleted.
- You will be eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility.
- Wage garnishment ends, and the Internal Revenue Service no longer withholds your income tax refund.
Disputing Your Default
If KHEAA-Alabama is your guarantor and you would like for us to review your account, please send us a detailed description of your dispute along with supporting documentation. KHEAA can only require a lender to repurchase your loan if the lender makes an error in the servicing. Please include the following information with your request:
- Your full name.
- Your account number or Social Security number.
- Documentation/proof that your lender made an error in the handling of your loans.
- Proof that payments were made during the delinquency period prior to the default.
- Documentation that you applied for and received an approved deferment prior to default.
- Other evidence of an error by the lender.
The dispute and documentation should be mailed to:
Customer Care Branch
PO Box 798
Frankfort, KY 40602-0798
Please call us at 1.800.928.4241 for questions regarding your defaulted student loan account.