Defaulting on a Federal Loan
What Happens When Your Federal Student Loan Defaults
Once your student loan has defaulted, the lender/servicer submits a claim to the guarantor of the loan. Once the lender/servicer has been paid, the guaranty agency becomes the holder of your student loan.
Guaranty agencies will:
- Contact defaulted borrowers
- Work with the borrowers to develop a satisfactory repayment plan
- Send bill statements for payment
- Report defaulted student loans to the national credit bureaus
- Assess collection costs to the account.
Resolving Federal Student Loan Defaults
- Reinstatement of Title IV Eligibility - Borrowers who make six consecutive, voluntary, regular payments are eligible to have their Title IV student eligibility reinstated. This allows students to return to school if they so desire and become eligible for additional financial aid. For more information contact us at 800-792-8670 option 3.
- Loan Rehabilitation - Borrowers who make nine, consecutive, voluntary, regular payments within a ten month period are eligible to have their defaulted student loans rehabilitated, which means the defaulted loan is sold to an eligible lender, the default credit entry on their credit report is removed, the loan is reinstated and the borrower becomes eligible for additional Title IV aid, deferments and forbearances. For more information contact us at 800-792-8670 option 3.
- Loan Consolidation - Borrowers may also become eligible for loan consolidation if they make three consecutive, voluntary, regular payments. Loan consolidation often affords borrowers a longer repayment term and lower monthly payments. Borrowers may be eligible to have a defaulted student loan consolidated without making any payments if they request an income contingent repayment option.
Make a Payment
It is important to resolve a defaulted student loan. Making regular payments is the first step. HESAA can help you by making it easier to make a payment.
Debit from Your Checking or Savings Account
To assist you in making timely payment, click here to download an ACH form that will allow HESAA to automatically debit your checking account or savings account. This will eliminate the need to write a check every month.
Credit Card Payments
You can also make a payment on your HESAA defaulted account via a credit card. Click here for more information on this option.
Other Collection Tools
For those borrowers who fail to make regular payments, HESAA utilizes a variety of collection tools.
-
Treasury offsets - Federal offset occurs when any federal tax refund, rebate or payment to the defaulted borrower is redirected to HESAA to reduce the outstanding debt.
-
SOIL is the state-offset program which allows the agency to collect defaulted borrowers' tax refunds, homestead rebates and Tax Saver rebates in order to reduce their outstanding debt.
-
State Lottery offset occurs when a defaulted borrower is a winner of a lottery amount over $1000.
-
Administrative wage garnishment is another example of the agency’s collection tools and involves the borrower’s employer in withholding set amounts from a employee’s paychecks and forwarding the funds to HESAA.
-
Suspension of professional/occupational licenses can also be utilized by the collection staff.
-
Litigation