Resolve a Defaulted Student Loan

UCLA Student Loan Services and Collections - My Loan Data

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Defaulting on a student loan, such as a Federal Stafford or Perkins Loan, can have any number of negative impacts on your life. It may inhibit your ability to receive further financial aid and so block your academic progress here at UCLA. Credit bureaus report monthly on each student loan borrower’s payment habits. Because of our society’s general reliance on credit reporting and background checks, a report of a delinquent or defaulted student loan can have potentially adverse effects on your ability to borrow money or obtain some types of employment.

What exactly is default? Federal regulations governing student loans define default as “the failure of a borrower to make an installment payment due or to comply with other terms of the promissory note or written repayment agreement.”

For the purposes of this guide, let us consider a Stafford or a Perkins Loan that is delinquent with at least one payment thirty or more days late. Three such scenarios are outlined below. The last scenario is the most serious though all three require an immediate action on your part to rectify the situation and mitigate, if not repair, damage to your credit as well as your future ability to receive federal financial aid.

Scenario 1:

Your account is delinquent because a student deferment hasn’t been filed:

  • STEP 1: Contact the lender immediately. Find out the status of the loan and your options for resolving it. The solution in this first scenario requires the filing of a student deferment. Commit to the lender to resolve the matter and to a deadline date by which you will file the deferment.
  • STEP 2: Contact the records or registrars office of the school from which you need to obtain the deferment, and ask that they send it to the lender. Alternatively, you could ask them if they would send it to you, so you can send it to the lender. Some schools’ policies, however, will bar them from sending a deferment certification to the student. Although many schools may report enrollment information directly to your lender, others do not. It is your responsibility to ensure that the lender has received your deferment.
  • STEP 3: Contact the lender again after a suitable amount of time has elapsed to confirm that they have received the required deferment. Also, confirm that the delinquency has been fully resolved.

Scenario 2:

Your account is delinquent because of a payment or payments you have not remitted:

  • STEP 1: Contact the lender to identify which payment(s) you have to make to bring the account current. Ask the lender about the amount of any late fees due. If you are able to remit the amount needed resolve the delinquency with just one payment, notify the lender, and commit to a date by which they should expect to receive the payment from you. If you are not able to pay the total amount due immediately, go to STEP 3.
  • STEP 2: Contact the lender after a suitable amount of time has elapsed to confirm receipt of your payment and resolution of the delinquency. If the delinquency is resolved, you need not take any further steps at this time. Your lender places your account back into regular billing.
  • STEP 3: Describe your financial situation to the lender. The lender may proceed to offer you a partial payment plan, deferment, or forbearance to resolve the delinquency.

    If the lender deems a deferment or forbearance the best solution, they will send you an application form to complete. Return the completed application along with any required documentation to the lender for review by the deadline date.

    If you agree to a temporary partial payment plan, send those payments in on time and according to schedule. You are once again eligible to receive federal financial aid funding after you have made six consecutive on-time monthly payments. Continue to make all the required payments on this payment agreement until your account is current.
  • STEP 4: Contact the lender when you have met your obligation to resolve the delinquency and confirm that the account is back in good standing. If you had applied for deferment or forbearance, the lender will send you an approval notification about the length of the period, any interest due, and when you are to resume normal billing. If you made payments on a temporary payment agreement plan, once current, your account goes back onto the normal billing schedule.

Scenario 3:

Your account has been referred to a collection agency:

You can no longer just catch up on missed payments, nor can you ask for deferment or forbearance. The entire balance of the loan plus interest and collection costs are due. What can you do?

  • STEP 1: Contact the collection agency immediately to begin a resolution of the account. Being proactive, especially now, will work in your favor.
  • STEP 2: Find out on whose behalf the collection agency is contacting you so you know on which loan you have defaulted.
  • STEP 3: Discuss your options with the collection agency. Typically, resolutions come about through a monthly repayment agreement, a one-time payment in full that you yourself make, or a payment in full made through student loan consolidation.

Remember that this is a general guide. We strongly recommended that you communicate directly with your lender regarding your rights and obligations under the terms of your Stafford or Perkins Loan.