Frequently Asked Questions: Defaulted Loans

1. Who is EdFund?
2. What is default and what does it mean?
3. How long am I legally liable for a defaulted student loan?
4. How is my student loan reported on my credit report?
5. Can I pay less than I owe on my defaulted loan?
6. Can I give authorization to someone so they may speak to EdFund on my behalf?
7. Can my loans ever be cancelled?
8. Can I receive a deferment or forbearance if my loan is in default?
9. I was underage when I obtained this loan. Am I still responsible for it?
10. If I have a defaulted loan, how can I qualify for additional aid?
11. Can I file bankruptcy to get my loan discharged?
12. How can I stop the garnishment of my wages?
13. Why is the rehabilitation payment so high?
14. Why was my account placed with a collection agency?
15. What are collection costs?
16. I consolidated my loans. Why was one loan not included?
17. What are my options if I was not satisfied with the quality of education provided by the school?

1. Who is EdFund?

EdFund is the guarantee services provider for the California Student Aid Commission (CSAC), a national guarantor within the Federal Family Education Loan Program. EdFund administers FFEL Program activities on CSAC's behalf, including loan origination, default prevention efforts, loan purchase and collection.

2. What is default and what does it mean?

If a borrower makes no payments to their lender for more than 270 days, then the Lender will request to be reimbursed for the loan. Between 271 and 330 days of delinquency, the lender can file a claim with EdFund for reimbursement of the borrower's outstanding loan balance. Once EdFund determines the lender has correctly serviced the loan, the lender is reimbursed and the loan is considered defaulted.

• You lose the right to deferment or to request a forbearance.
• Your defaulted loan is reported as a collection account to national credit bureaus. As a poor credit risk, you will find it increasingly difficult to obtain loans of any kind.
• Collection costs of up to 25% of your balance are added to your debt.
• You become ineligible for further financial aid until your loan is paid in full or you have entered a qualifying repayment agreement with EdFund
• Your school may withhold academic transcripts.
• Your tax refunds may be withheld to repay the defaulted student loan.
• Federal payments to you, including Social Security retirement and/or disability income, may be reduced.
• Your wages may be garnished.
• Your loan may be assigned to a collection agency.

3. How long am I legally liable for a defaulted student loan?

There is no statute of limitations on your liability unless your loan is forgiven or discharged. A defaulted student loan will appear on your credit report and have a negative impact on your credit score.

4. How is my student loan reported on my credit report?

Your lender reports information to the national credit bureaus on each student loan. If you default on your loan: the loan's guarantor must report your loan as a “collection account.” Once the loan is paid in full, the guarantor updates the reporting to “paid collection account.” Be aware that each default is reported twice—once by your lender and once by the loan's guarantor. If you rehabilitate your loan: a lender will repurchase it and remove it from default. And your guarantor will remove derogatory credit remarks from your credit report. Outdated information: Credit bureaus can remove information after it becomes outdated. If the initial negative report is more than seven years old, your guarantor will delete it. Removal of a negative report does not change your obligation to repay your loan.

5. Can I pay less than I owe on my defaulted loan?

No. If you are experiencing financial difficulty, you may be able to negotiate a lower monthly payment amount or a temporary suspension of your payments. Documentation of your financial circumstances will be required.

6. Can I give authorization to someone so they can speak to EdFund on my behalf?

Yes. You will be required to complete and mail to EdFund an “Authorization to Disclose Private Confidential Information.”

7. Can my loans ever be canceled?

On rare occasions, yes. Examples of discharge programs include Closed School, False Certification, Unpaid Refund, being totally and permanently disabled, the death of the borrower (or student in the case of a PLUS loan), and Teacher Loan Forgiveness.

8. Can I receive a deferment or forbearance if my loan is in default?

No, except in very specific cases involving members of the military and residents of a declared disaster area. Deferments, which allow postponement of loan payments, are generally available only prior to default.

9. I was underage when I obtained this loan. Am I still responsible for it?

Yes, according to federal law, which supersedes state law.

10. What are my options if I was not satisfied with the quality of education provided by my school?

The terms of the master promissory note you signed do not relieve you of your obligation to repay your student loan because you are dissatisfied with the quality of your academic program. Your best option is to contact the agency responsible for school oversight in your state. You may also contact the agency that accredited your school. A list of accrediting agencies is available on the U.S. Department of Education's Web site .

11. If I have a defaulted loan, how can I qualify for additional aid?

Make a satisfactory repayment arrangement with EdFund and stick to it! You will need to demonstrate your willingness to repay your loan by making consecutive, on-time monthly payments. To fully discuss your options, please contact EdFund's loan repayment counselors at 1.800.367.1589.

12. Can I file bankruptcy to have my loan discharged?

Student loans are generally not dischargeable in bankruptcy.

13. How can I stop the garnishment of my wages?

Establishing a voluntary repayment agreement, that meets specific eligibility criteria, may suspend the garnishment. To fully discuss your options, please contact EdFund 's loan repayment counselors at 1.800.367.1589.

14. Why is the rehabilitation payment so high?

Guidance provided by the U.S. Department of Education determines the monthly payment that makes you eligible for loan rehabilitation. Frequently, the only option available is a payment amount which pays off your debt within 10 years. To fully discuss your options, please contact EdFund 's loan repayment counselors at 1.800.367.1589.

15. Why was my account placed with a collection agency?

To best meet our obligation within the Student Loan program to collect on defaulted student loans, EdFund contracts with various collection agencies. You are always welcome to contact our Post-Default Services Unit at 1.800.367.1590 for assistance in understanding the location of your loan. When calling this number, the system will notify you if your account is assigned to a collection agency and how to contact that agency.

16. What are collection costs?

Federal regulations require EdFund to charge defaulted borrowers the costs associated with collecting on their loan. This may include attorney fees, collection agency charges, and court costs. Collection costs are deducted from payments received on a borrower's account. Regulations allow for a collection cost fee of as much as 25 percent although EdFund may charge less.

17. I consolidated my loans. Why was one loan not included?

Borrowers must complete their own consolidation application and sometimes lose track of all the loans they received. If a loan wasn't on the application, it doesn't get included in the consolidation. With all the lenders and agencies involved in the student loan industry, it's very easy to lose track of one's debts. The National Student Loan Data System can help you determine your total student loan debt, the status of your loans and whom you should contact to determine your options.