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Recovering after defaulting on student loan

Go more than nine months without making a payment on your student loans and you’ll be in default. If you’re thinking, “No biggie, I’ll just declare bankruptcy” — not so fast.

Go more than nine months without making a payment on your student loans and you’ll be in default. If you’re thinking, “No biggie, I’ll just declare bankruptcy” — not so fast. Student loans
are not dismissed in bankruptcy: You will still owe the money, and the lenders can demand immediate payment in full.

You have three options once you’re in default, according to Jennifer Schultz, supervising attorney at Community Legal Services in Philadelphia.

1. Rehabilitation
Reach an agreement with the lender and pay on time for 13 consecutive months. After that, you’re out of default and the black mark is removed from your credit history.

2. Consolidation
Combine all of your loans into one new loan. With this option, you’re out of default immediately, but the history of previously missed payments stays on your record.

3. Discharge
Under very limited circumstances, like permanent disability, the loan might be discharged. The rules have relaxed somewhat over the last year, so if you were turned down for a discharge previously, apply again.

Do you need a lawyer?

When it comes to defaulting, probably not. “If your wages are being garnished, there’s nothing a lawyer can do — but if there’s a challenge or a dispute, you need to file papers within a certain amount of time. A lawyer can help you with that,” advises Schultz.

For more information, go to the Department of Education’s website on default issues at www2.ed.gov/offices/OSFAP/DCS/index.html. Or, give them a call at: 800-621-3115.

 
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