Author Topic: How does one "default" on a student loan?  (Read 1886 times)

nawhite

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How does one "default" on a student loan?
« on: February 03, 2014, 01:44:35 PM »
I'm not planning on doing this!!! But, I keep hearing that the Default Rate is going up. Articles like this one: http://www.ed.gov/news/press-releases/default-rates-continue-rise-federal-student-loans which says that the default rate for students who graduated in 2010 is over 14%.

A friend of mine alluded that his wife defaulted on her student loans (within the last 2 years) so they wouldn't be approved for a mortgage. I thought student loans couldn't be discharged in bankruptcy? How does one default on a loan (let alone a student loan) without declaring bankruptcy?


arebelspy

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Re: How does one "default" on a student loan?
« Reply #1 on: February 03, 2014, 02:09:06 PM »
I'm not planning on doing this!!! But, I keep hearing that the Default Rate is going up. Articles like this one: http://www.ed.gov/news/press-releases/default-rates-continue-rise-federal-student-loans which says that the default rate for students who graduated in 2010 is over 14%.

A friend of mine alluded that his wife defaulted on her student loans (within the last 2 years) so they wouldn't be approved for a mortgage. I thought student loans couldn't be discharged in bankruptcy? How does one default on a loan (let alone a student loan) without declaring bankruptcy?

Well it could be a private loan, which means they could default on it.

Or he could have used the term incorrectly, and it wasn't a default, she still owes it, but she stopped paying it and that hurt her credit score a lot.
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galliver

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Re: How does one "default" on a student loan?
« Reply #2 on: February 03, 2014, 02:22:42 PM »
A loan is 'delinquent' if it has a late payment on it, and 'in default' if payments that should have been made haven't been for a certain length of time (according to this site, 270 days for loans with monthly payments: http://studentaid.ed.gov/repay-loans/default) It doesn't mean it's gone or discharged.

Unfortunately, I heard about this when someone close to me narrowly avoided default by negotiating with his creditors last-minute. :/

Thegoblinchief

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Re: How does one "default" on a student loan?
« Reply #3 on: February 03, 2014, 02:22:59 PM »
Federal loans are considered to be in default after nine months of missed payments. Once defaulted, the entire balance becomes due and the government can garnish wages, seize tax refunds, etc.

Federal loans CAN be discharged in bankruptcy, but you have to prove something called "undue hardship", which is much harder to demonstrate than standard consumer credit.

Private loans expire after six years of default, depending on the state.