What can happen if my loan defaults?

Your loan may be assigned to a collection agency.
After a student loan defaults, EDFUND sends multiple notices and makes several phone calls to try and contact the student to establish a repayment arrangement. If a student does not arrange an acceptable repayment schedule with EDFUND, the student loan account will be assigned to a collection agency for more aggressive collection efforts.

Your loan default may be reported as a collection account to national credit bureaus.
The terms of the loan application/Promissory Note are clear regarding credit reporting. The Promissory Note that all student loan borrowers sign states the following:

"If I default, this will be reported to national credit bureau organizations and will significantly and adversely affect my credit history."

Federal regulations require each holder of a student loan to accurately report the status of the loan to national credit bureaus. EDFUND must purchase a loan from a lender when that loan defaults. The loan then becomes a collection account. EDFUND reports to the major credit bureaus that the loan is now a collection account with EDFUND. Upon payment in full, we report the account as a paid collection account. EDFUND cannot delete negative credit remarks unless these remarks are incorrect or were reported in error.

You lose the right to deferment and to repayment of your account in monthly installments.
Per the terms of a Federal Family Education Loan Program (FFELP) Promissory Note, student loans are not eligible for deferment after default. The Promissory Note, under the section Borrower's Rights and Responsibilities, Consequences of Default, states, "Failure to repay this or any FFELP loan may result in loss of eligibility for deferments." A defaulted loan cannot be deferred for any reason.

The Promissory Note under the section entitled Acceleration and Default also states the following:

"At the option of the holder, the entire unpaid balance shall become immediately due and payable upon the occurrence of any one of the following events...(iv) I default on the loan(s)."

Both EDFUND and collection agencies handling a defaulted student loan account have the right to demand immediate payment in full of the entire outstanding loan balance.

You become ineligible for further financial aid.
Federal regulations require that satisfactory payment arrangements be made on defaulted student loans before a borrower is eligible to receive additional financial aid. Please contact EDFUND at 800.367.1589 for more information about arranging satisfactory repayment on a defaulted student loan.

Your school may withhold academic transcripts.
In some instances schools will withhold academic transcripts for borrowers with defaulted student loans. In order to obtain a release on transcripts, satisfactory payment arrangements must be made on the defaulted student loan.

Your state and federal tax refund may be "offset" or taken away from you and applied to your defaulted student loan debt.
EDFUND has a responsibility to the federal government to ensure that student loans are repaid. Section 2653 of the Deficit Reduction Act of 1984 provides the authority for the Internal Revenue Service to offset Treasury refunds and other federal payments of taxpayers indebted to the government. Government Code US 12419.5 allows the state controller to offset state income tax refunds and lottery winnings when a person is in debt to a state agency. To prevent future tax offsets, satisfactory repayment arrangements must be made on the defaulted student loan.

Your wages may be attached.
Section 682.410(b)(10)(A-O) of the Code of Federal Regulations authorizes guaranty agencies to garnish the wages of defaulted student loan borrowers. The term "administrative" means that EDFUND does not have to obtain a court order to garnish a borrower's income. To prevent administrative wage garnishment, satisfactory repayment arrangements must be made on the defaulted student loan.

Your defaulted loans may be assessed collection costs.
Section 682.401(b)(27) of the Code of Federal Regulations and the terms of the student loan promissory note authorize EDFUND to add collection costs to defaulted student loans. Your defaulted loan(s) may be assessed a collection cost which is calculated annually.

Please contact EDFUND at 800.367.1589 for more information about arranging satisfactory repayment on a defaulted student loan.

How will I benefit from resolving my default?

You may regain eligibility for additional financial aid.
By either paying the defaulted loan in full or meeting the satisfactory repayment criteria with six consecutive satisfactory payments.

You may obtain academic transcripts from schools attended.
In order to obtain a release on any academic transcripts that may have been seized as a result of a defaulted student loan, satisfactory repayment arrangements must be arranged. Please contact EDFUND at 800.367.1589 for more information about arranging satisfactory repayment on a defaulted student loan.

You may be eligible to consolidate your defaulted student loans.
Some consolidation lenders require that students make satisfactory repayment on their defaulted student loans before they will consider consolidating the loans.

Your credit will improve.
Federal Regulations require EDFUND to report the default status of a loan to credit bureaus. EDFUND must purchase a loan from a lender when that loan defaults. The loan then becomes a collection account. EDFUND reports to the major credit bureaus that the loan is now a collection account with EDFUND. Upon payment in full, we report the account as a paid collection account.

Please contact EDFUND at 800.367.1589 for more information about arranging satisfactory repayment on a defaulted student loans or participating in the rehabilitation program.

What can I do to resolve my defaulted student loan?

Repayment
The advantages of making regular payments are many. You may regain eligibility for financial aid; you may obtain academic transcripts from schools attended, and you may have your defaulted student loans consolidated. EDFUND has a responsibility to ensure that defaulted student loans are repaid so that funds are available for future generations of students to obtain the benefit of higher education.

Rehabilitation
The Federal Loan Rehabilitation Program has been an excellent benefit we have been proud to offer our borrowers. Due to the current economic crisis and changes to many financial institutions, the lender who was purchasing these loans from EdFund and other guarantee agencies has decided to suspend purchasing rehabilitated loans at this time. Without a lender to purchase these loans, EdFund is unable to provide this program at this time. We are hopeful that this will be a temporary suspension and that we are able to resume offering the program in the future. When a rehabilitation lender is identified, EdFund will provide borrowers with additional information regarding the program.

Cancellation
There are several provisions in the Code of Federal Regulations that allow student loan borrowers with certain circumstances to have their default loans discharged. See Default Remedies for more information about cancellations.

Dispute
Federal Regulations also provide a process of dispute and appeal for borrowers in default. For more information on how to file a dispute, see General Dispute Information.

Consolidation
Loan consolidation enables a borrower with several loans to obtain one loan with one interest rate and one repayment schedule. Click here for more details, or contact EDFUND at 800.367.1589 for more information about consolidation options.

Federal PLUS Loans for Parents
Parent Loans for Undergraduate Students (PLUS) enable your parents or stepparents to borrow money for your college costs. PLUS loans are not based on your family's income or assets and are only for undergraduate study. These loans are always unsubsidized.

How do my parents qualify for a PLUS loan?
To qualify, students and their parents must meet the requirements for federal financial aid and the student must be a dependent student. Students must also file the Free Application for Federal Student Aid (FAFSA).

Parents must meet credit requirements and must not have:

• tax liens or judgments
• delinquent or defaulted student loans
• extensive credit card debt
• bankruptcy
• foreclosure
• wage garnishment within the past five years

If parents do not meet credit requirements, they may still be eligible to receive a PLUS loan. Parents may have someone else co-sign their loan if the co-signer meets the credit requirements, or the family may choose to apply for an unsubsidized Stafford loan.

To learn more, contact your college's financial aid office.