When it comes to debt, the most relentless creditor to have is the federal government. Student loans that are not paid in a timely manner will be forwarded to a collection department or agency. The government utilizes private collection agencies to collect these back loans on their behalf, and they forward delinquent loans to these services very quickly. The problem in now dealing with a collection agency is that your credit score will suffer if your student loan stays in delinquent status. The best option is to be proactive and call the agency to work out a payment plan to get back on track.
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The government agency responsible for issuing student loans, the U.S. Department of Education, offers deferments for those still enrolled at least half-time in college because they do recognize that it is harder to pay back loans while still attending school. In addition, if finding a job after college has proven difficult, you can apply for various financial hardship programs. These include up to 36 months of forbearance status for any reason, up to 24 months of unemployment forbearance, and income sensitive repayment status. However, you cannot qualify for any of these if your loan is in default.
By contacting the servicing agency on your loan, and giving them the required information, along with your proof of income, you can renegotiate a payment plan that will bring your accounts current. The mitigating factor is that you must maintain current status for a predetermined period, usually between six and twelve months, or else your loan will revert back to collection status.
When a debt to the government becomes seriously delinquent, the possibility that they will garnish your wages becomes likely. If wages are currently being garnished, the amount being withheld from your paychecks is completely separate from the amounts that are needed to satisfy your repayment plan. Once you have completed the terms of your repayment plan, your loan will be returned to current status, be reflected as a current account on your credit report, and no more fees, other than interest, will be added.
Now that the loan is no longer in collections status, you can speak with your servicing agency to see what choices may be available to you to lower your monthly payment, forbear payments for a certain number of months, and even possibilities for government forgiveness of the loans based on the industry you work in. This is all to help you improve your financial standing while keeping up with current financial responsibilities.
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