Loan Default Prevention
Option for Financially Challenged Student Loan Borrowers
The U.S. Department of Education provides options to student loan borrowers who are having difficulties with repaying loans. You can learn more about these options by visiting their deferment and forbearance website.
Example Repayment Schedule
The National Association of Student Financial Aid Administrators have developed a chart illustrating various repayment methods for student loans based on the amount borrowed. Download the Sample Loan Repayment Schedule (PDF file, requires the free Adobe Reader which can be downloaded here).
Consequences of Defaulting on Student Loans
The National Association of Student Financial Aid Administrators provides the following Student Loan Default Facts and Repayment Tips for Struggling Borrowers:
- Payment of entire loan balance (principal and interest) becomes due immediately
- Garnished wages and federal and/or state tax refunds
- Withheld Social Security retirement benefits and disability benefits
- Additional charges, late fees, and collection costs
- Ineligibility for additional student aid
- Damaged credit rating and lower credit score (which could prevent obtaining a mortgage, buying a car, or borrowing other consumer loans in the future)
- Loss of eligibility for loan deferments (such as for in-school, unemployment, etc.)
- The U.S. Department of Education’s Federal Student Aid Ombudsman (1-877-557-2575, firstname.lastname@example.org)
- The Student Loan Borrower Assistance Project run by the National Consumer Law Center
A recently enacted financial reform law created an ombudsman for private student loans to mediate disputes between private loan borrowers and their lenders. This service has not been set up yet, but it will be a resource for borrowers in the future.
Financial Aid Glossary
Here are some helpful definitions of terms you will encounter when applying for financial aid:
- ACADEMIC YEAR: A period of time schools use to measure a quantity of study. For example, a school’s academic year may consist of a fall and spring semester during which a full-time undergraduate student must complete 24 semester hours. Academic years vary from school to school and even from educational program to educational program at the same school.
- ACCEPTANCE FORM: The written acknowledgment by the student of receipt of an award offer. The form usually provides for acceptance of aid offered, possible declination of all or part of aid offered, and some means of requesting an appeal, if desired, to modify the award. Frequently, acceptance letters and award letters are combined into a single document. The form may be electronic.
- ACCREDUTATION: Refers to the school meeting certain minimum academic standards, as defined by the accrediting body. A school must have accreditation from an accrediting body recognized by the U.S. Department of Education to be eligible to participate in the administration of federal student aid programs. Accruing Interest (on a loan): The cost of the loan, represented by the interest which is added to the loan amount prior to the repayment period or prior to a payment installment.
- ADJUSTED AVAILABLE INCOME: The portion of family income remaining after deducting federal, state, and local taxes, a living allowance, and other allowances used in Federal Methodology to calculate the expected family contribution (EFC).
- ADJUSTED GROSS INCOME (AGI): All taxable income as reported on a U.S. income tax return.
- ADVANCED PLACEMENT (AP): Credit and/or advanced standing that postsecondary institutions may offer to high school students who have taken high-level courses and passed certain examinations.
- AGREEMENT TO SERVE: A contract under which a student receiving a Teacher Education Assistance for College and Higher Education (TEACH) Grant commits to the specific obligation to teach for four complete years in a designated high-need field at a low-income elementary or secondary school within eight years of completing or ceasing enrollment in a TEACH Grant-eligible program.
- ASSETS: Balance of cash, checking and savings accounts, trusts, stocks, bonds, other securities, real estate (excluding the home), income-producing property, business equipment, and business inventory. Assets are considered in calculating the EFC.
- ASSOCIATE’S DEGREE: The degree given for successful completion of a program of study at a two-year institution.
Other Helpful Links
- U.S. Department of Education http://www.ed.gov/offices/OSFAP/DCS/default.html
- National Student Loan Data System (NSLDS) http://www.nslds.ed.gov
- Federal Student Aid http://www.studentaid.ed.gov
- National Council of Higher Education Loan Programs (NCHelp) (Access Deferment Forms, Forbearance & Other Applications) http://www.nchelp.org/elibrary/index.cfm?parent=61