Published November 29, 2011
Dear Opening Credits,
I want to know if I can go back to school even though my student loans are in default.
Not only can you return to the hallowed halls of higher learning, I think you should! It may be tough to pay for tuition, books and living expenses without student loans, but some people have made it work. In fact, CreditCards.com has interviewed Zac Bissonnette, author of "Debt-Free U" about how students can graduate in the free and clear. Check it out.
What you can't do, Larissa, is get more federally guaranteed student loans to pay for your education while the ones you have are in default. So if you want to borrow more money for college, you'll have to clear them up. It's very important to get the loans back in good standing anyway, since the consequences of default are just awful. For example, the entity that is holding that debt now may:
Also, if your loans have landed with a collection agency, the company will have added a fee to the balance and your interest rates will have zoomed up. That makes it more expensive and difficult to repay, of course, and the collection techniques can be pretty nasty. Therefore, if you do begin to get calls, make sure you understand your rights by reading over the Fair Debt Collection Practices Act, a federal law that governs third-party collectors.
So that's what can happen if you let the loans linger in bad credit land. Inspired to get them out of default now and collect federal financial aid for school? Good. You can do so by paying the amount you owe in full. If that's not possible, take steps to rehabilitate the loan. You can do that by contacting the loan's holder, and making at least six monthly agreed-upon payments. After that, you may qualify for new student loans, but you must continue to send payments on the old ones on time, otherwise you may forfeit the deal. Your loans will be rehabilitated after you've made at least nine full payments over a 10-month period. At that point the default notation should be lifted from your credit reports and you may be eligible for a deferment or forbearance.
And if possible, don't wait until the loans are back in good standing to resume classes. It's hard to regain lost momentum. Maybe your parents will help out or you have savings or a job that can pay for the bare minimum? Explore all possibilities.