Defaulting on federal student loans has been growing with the downturn in the economy. The Education Department recently reported an increase in defaults within the first two years of repayment in the fall of 2009 of 7% to almost 9% for the two years ended in the fall of 2010.

What Causes A Default On Student Loans?

If no payment has been made for a year, the loan is considered in default. The government will do all it can in its power to get the money from you, from garnishing your wages to withholding your tax refund checks.

However, there is a program that has been offerd by the federal government for the last two years. Less than 2% of borrowers are taking advantage of it; however, it is estimated that over 10% could actually qualify, as many students aren't even aware of it.

What Is The Government's Program?

The program is income based, and if your income is low, or if you have none at all, you may qualify for a zero payment. Monthly payments are based on income and family size. The payment is capped at 15% of discretionary income, and discretionary income is based on a formula tied to the poverty rate.

Your income will be reviewed annually and an adustment will be made to your payment if your income changes.

The great news is after 25 years, if you have a remaining balance, it is forgiven. If you work in a public service position that qualifies for forgiveness, you can extinguish the debt in only 10 years. Keep in mind, the faster you pay off the debt the better off you'll be as you'll accrue less in interest.

To see if you qualify, contact your lender or loan servicer. There is a loan calculator that will tell you what your payments might be; you can find it at

But, I've Already Defaulted, Is There Anything I Can Do?

Yes there is! You first have to rehabilitate your loan. You would do this by receiving a new monthly payment from the government. If you make nine out of ten payments, you would have rehabilitated your loan and you can then apply for an income-based loan.

Are you doing everything you can to make your student loan payments?



CategoriesCredit & Debt