How to Fix Defaulted Student Loans and Wage Garnishments

">• Enter a loan rehabilitation program;
In this tough economy, an increasing number of• Pay the loan(s) off completely
college graduates (and college drop-outs) are falling• Get the loan(s) totally discharged or cancelled
behind on their student loans. According to theThe last two are probably not realistic options. I
Department of Education, federal student loanknow you don't have the money to pay off the
defaults were up to 6.9% in 2009, well above theirloan(s). That's why you're in this predicament; and
2008 of 5.2%. For those carrying private loans,loan cancellations are rare (though they can be
defaults hit 3.37% in 2008 versus 1.47% in 2006,obtained). You'll likely have to "rehabilitate" your
according to Sallie Mae, one of America's largestloan(s) or consolidate.
providers of private loans.Should You "Rehabilitate" Your Loans or Consolidate?
As you probably already know, defaulting on aBefore you can consolidate, you have to bring your
student loan is a very serious matter. A federalloan(s) out of default status. You do this by making
college loan falls into default status if you arejust three monthly payments - on time, and in any
supposed to make monthly payments, but have notamount that you and your lender agree upon. To find
done so for 270 days. For those whose student loanout if you qualify for loan consolidation, contact the
payments are less frequent, a default occurs onceFederal Direct Consolidation Loan Info Center at
you haven't made payments for 330 days. In either800-557-7392 or go online to If you call, the staff
case, the government has the right to take yourthere should be able to tell you what your monthly
federal tax refund check or garnish up to 15% ofpayment will need to be for those three months
your disposable pay in order to collect on a defaultedwhile your loan is in repayment. The one drawback to
federal student loan. Defaulted student loans alsoconsolidation is that your credit remains tarnished.
negatively impact your credit.Even though your loan will be paid off and listed as
Appealing a Wage Garnishment"paid in full" on your credit report, you'll get a new
The good news is that you can appeal a wageloan through consolidation and that previous default
garnishment and request a hearing on the matter instill shows on your credit report for seven years.
order to demonstrate why it is that you can't affordAn alternative, to fix your credit, and have all past
that the payments and wage garnishment yournegative information about your student loans
lender or guaranty agency is seeking. The U.S.completely deleted from your credit file is to go
Department of Education Debt Collection Servicesthrough loan rehabilitation.
Office (DCS) holds the hearing after you fill out aIn a nutshell with rehabilitation you make 9 or 12
"Request for Hearing" form regarding your wageon-time payments on your student loans in an
garnishment, and send it to the Department ofamount you can afford. You make nine monthly
Education.payments on Direct Loans and Federal Family
Your hearing can be done in-person, over theEducation Loans, or 12 monthly payments on Perkins
telephone, or in writing; the choice is up to you.Loans. This, in my opinion, is the preferred route as it
IMPORTANT NOTE: When you submit your Requestwill help you restore your credit in a big way, so your
for Hearing, make sure you also send anotherpast default won't haunt you for years to come.
EXTREMELY IMPORTANT document. It is theFor more details about various alternatives to cure
"Financial Disclosure Statement," a 3-page documentyour student loan delinquency, check out the
in which you must document your income and itemizeDepartment of Education's guidebook called "Options
all your expenses.for Financially-Challenged Borrowers in Default."
The "Financial Disclosure Statement" form will beGet Help From an Ombudsman
critical in the hearing/appeal process, and will beAdditionally, you should know that if you ever have a
closely evaluated, so take the time to carefully list alldispute with your lender or loan servicer about
your bills, and provide copies of those bills asanything related to your federal student loans, there
requested.is a government agency that may be of assistance in
On page 3 of the Financial Disclosure Statement, youresolving that dispute. It's called the Federal Student
will notice a line that says: "Based on this Statement,Aid Office of the Ombudsman. Always try to work
I think I can afford to pay $____ per month." This isthings out first with your lender by using the online
where you have an opportunity to essentially offer a"Self Resolution Checklist" from the Ombudsman's
counter-proposal to the Department of Educationoffice. But let's say you think your loan was
about your student loans. Regardless of what you'vemistakenly placed in default by your lender - maybe
been asked to pay in the past, here is where youyou were in school at least half-time, you had a loan
should realistically evaluate your budget and come updeferment or forbearance, or you actually made
with a number that you can undoubtedly paypayments on your loan - and you can't get a
(without a huge financial strain) month after month.satisfactory resolution of the issue, then it's time to
The Department of Education will make a decisionreach out to the Ombudsman's office.
about your case within 60 days after your hearing.No matter what economic challenges you're facing,
But in the meantime, any wage garnishment that hasyou don't have to live with wage garnishments and
already started will continue to be in force.blemishes on your credit report because of defaulted
Four Options to Cure a Defaulted Student Loanstudent loans. Reach out for help today, and start
Now, in order to get your student loan(s) out ofthe process of turning that college debt problem
default, you have four options:around.
• Consolidate the loan(s)