IV of the Higher Education Act, default occurs on a FFEL
loan after a default has persisted for 270 days in the
case of a loan repayable in monthly installments or 330
days in the case of a loan repayable in less frequent
installments. The change is effective for loans for which
the first date of delinquency occurred on or after
October 7, 1998. During the delinquency period, the
lender must exercise "due diligence" in attempting to
collect the loan; that is, the lender must make repeated
efforts to locate and contact you about repayment. If
the lender's efforts are unsuccessful, it will usually take
steps to place the loan in default and turn the loan over
to the guaranty agency in your state. Lenders may
"accelerate" a defaulted loan, which means that the
entire balance of the loan (principal and interest)
becomes due in a single payment.
Once your loan is assigned to a guaranty agency or the
U.S. Department of Education for collection, the
following steps may be taken to recover the outstanding
balance due:
The U.S. Treasury may withhold your payments toward
repayment of your loan.
You may have to pay additional collection costs after
your loan is assigned to a private collection agency for
collection.
Also, you may be subject to Administrative Wage
Garnishment, whereby the Department will require your
employer to forward 10% to 15% of your disposable
pay toward repayment of your loan.
Federal employees face the possibility of having 15% of
their disposable pay offset by the Department toward
repayment of their loan through the Federal Employee
Salary Offset Program.
The Department may take legal action to force the you
to repay the loan.
Finally, credit bureaus may be notified, and your credit
rating will suffer.
Once a loan is declared in default, you are no longer
entitled to any deferments or forbearances. In addition,
you may not receive any additional Title IV Federal
student aid if you are in default on any Title IV student
loan until you have made payments of an approved
amount for at least six consecutive months.
