USSLC. US Student Loan Center. Published by: US Student Loan Center W. Busch Blvd. Suite 200 Tampa, FL 33549

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2 USSLC US Student Loan Center Published by: US Student Loan Center 2803 W. Busch Blvd. Suite 200 Tampa, FL Copyright 2017 US Student Loan Center, Inc. All Rights Reserved. May be shared with copyright and credit left intact. USSTUDENTLOANCENTER.ORG

3 Table of Contents Who Tries To Collect On A Defaulted Loan?... What Is Default?... When Does Your Loan Become Defaulted?... What Happens When Your Loan Goes Into Default?... What Limitations Does A Defaulted Loan Place On You?... What Is Wage Garnishment?... What Happens To Your Tax Return?... How Does Default Affect Your Credit?... What To Do If You re About To Go Into Default... How To Get A Payment That Will Work For You... How Consolidation Plays A Role... Benefits Of A Consolidation... What Is Rehabilitation?

4 USSLC US Student Loan Center About Us US StudentLoanCenter.org is a privately owned company made up of several teams of different people who have made it their jobs to help student loan borrowers make good decisions about their debt. Our goal is to help you manage and pay off your student loans in the best way possible so that you too may have a better financial future. We thrive on 3 things: Lowering Student Loan Payments to make them more affordable. Enrolling Borrowers Into the Most Beneficial Repayment Programs. Helping Borrowers Access Student Loan Forgiveness. Plus we are the constant support system the student loan community is currently missing. If you need help managing, paying off, or have questions about your student loan debt, you can call us, us, or get instant access to our most popular and useful articles circulating around student loans and you info@ussudentloancenter.org

5 How to Get Student Loans OUT of Default Default is one of those scary words when it comes to student loans. Everyone knows they need to keep their loans out of default. But, how many people actually know what default is, and what it takes for their loans to become defaulted? Default has a number of negative consequences associated with it. So, it s important to learn what to do if your loans do become defaulted. This guide contains the exclusive conversation between US Student Loan Center CMO Nick Bentley and Student Loan Expert, Marques McBride and covers absolutely everything you need to know about default, so you can make a confident and smart financial decision about your student loans.

6 Who Tries To Collect On A Defaulted Loan? Hey everybody, welcome to this week s Ask Me Anything with Mr. Marques McBride. Today is August 31st. My name is Nick Bentley; I m going to be your host today. Marques, thanks for joining me, man. Yes, it s always a pleasure to give you guys information on your student loans so you can get ahead of and tame those things. That s right, that s right. And today we re actually going to be talking about something that is your specialty, man. Something that you are absolutely the number one knowledge knower of, and that is how to get your student loans out of default. Yes. And if you look at the statistics nationwide, student loan debt is the number one defaulted debt in the nation right now. And that keeps you busy. That keeps you busy. Yes. That s the real bulk load of the day, because it gets very much complicated versus consolidation, because you re dealing with collection agencies, versus just the Department of Education. All these different, separate entities that are trying to collect from the people. So if you guys have student loan debt and you haven t paid on it in a while, then this is going to be an episode that you re going to want to pay attention to. Because you really want to understand what default is, how it works, what the time lines are, and then more importantly, how it can affect you, and then how to get out of it. And then some of the other tricks, I guess is the word, and we hit on it a little bit on our last podcast, but on this one I kind of want to recover that. Some of the things you can do to avoid defaulting. 1

7 So this podcast episode is going to be strictly focused on student loan defaults. I don t want to really get into rehab and wage garnishment and those things in this call. I want to focus specifically on the default aspect, and then we ll have a follow-up one to talk about student loan rehabilitation and getting out of wage garnishment and things like that. Because that in itself is kind of another animal, right? It s a whole different beast. A whole different process, all kinds of things that go into that and how it affects people. But yes, more specifically, defaults is the most problematic thing when it comes to people. Because you know, they get into that situation and they don t know what it is to get out. They feel this stuck feeling. Oh man, I have no choices or no options. But you really do have options on how to get out and this is what this podcast is about. I ll give you that little format on those options, what it is, and what the situation that you re in so you know what to do. Cool. Let s just get into it. So go ahead. 2

8 What Is Default? So, initially, what is default? That word, what does it mean that a loan is defaulted? All it is -- what happens is when a loan is sent to a collection agency due to delinquency or failure to pay. If you re behind on loans or fail to pay on your loans for a specific amount of time, then it gets sent to a collection agency. It s no longer in the actual Department of Education servicer s hands; it s sent over to a collection agency. Gotcha. So when you graduate school and you ve got student loan debt and you come out of your grace period and you start getting the letters in the mail where it says Hey, you owe this much -- if you just ignore it, at some point in time -- and I think this is important for everybody to understand -- the student loan that is issued to borrowers is a liability to the borrower, but it s actually an asset for the Department of Education and the servicer that services it. So, when talking about default, it s where -- OK, when are we going to write this off as non-collectible and sell this debt to a collection agency? Yes. 3

9 When Does Your Loan Become Defaulted? So, let s talk about, it s not just when you miss your first payment. Then you re just 30 days late right, then you re 60, then you re 90, and if you keep going then you re 180. And if you re avoiding the calls, at some point in time they re going to say, Hey look, you re going to go into default on your student loans and all of these bad things are going to happen if you don t pay me. But sometimes, people just can t pay. They can t pay, it s not affordable. Or they choose not to. Whatever the case may be. So, let s talk about the timelines. Go ahead. There s a specific timeline -- this is very vital for you guys to jot this down somewhere -- of when a loan actually slips into default. When a loan slips into default is after 270 days of non-payment. From your original month that -- Hey, you re supposed to pay at this date -- just 270 days from that date is when the loan slips into default. However, before it goes to a collection agency, it s in a period of time where it s defaulted, but it hasn t transitioned to the collection agency as of yet. So some time between 270 and... The time frame of when it actually gets transferred over to a collection agency is 361 days. OK, OK. So it s kind of like a year. Yes. 4

10 What Happens When your Loan Goes Into Default? Basically. So if you go a year without a payment, you can pretty much count on FedLoan, Navient, whoever, selling your debt to somebody else to collect on it. Yes, correct. They will sell it over to another collection agency, and then you have another filter when it comes to trying to pay the loan debt off. You got the actual principal, got an interest rate; but now once it s with a collections agency, you have collection fees tacked on top of that. Gotcha, gotcha. So if you re the person that says Hey, I m just going to pay off my loans; I have enough money, but it s in default, you might want to get it out first because when you make a payment, most of majority of that is going toward the collection fees which has nothing to do with your student loans. -- with the balance of it. With the balance at all. The little scraps that left after that filter goes towards the interest, and whatever s remaining after all of that go towards your principal. Gotcha. So, over the course, like... Let s start at the beginning. Month 1, it s due, and you don t pay. You re collecting the interest on these and you re racking up late fees. How does that work on the way when you choose not to make them? On the way there before it goes into default -- it s not really late fees. It s just going to be whatever the monthly payment amount is. That s what s going to be due each month and it s just going to tack on and tack on and build up and build up. 5

11 Interest grows up. Yes. OK. So you have the interest rate that s just growing on the actual balance, but the total amount due is those months that are being added on, piled on next to each other. OK. So, let s say Month 9 rolls around, and we re at 270 days. Explain to us what the servicer or whoever, you know, Nelnet, FedLoan, whoever... Explain to us what happens between that 270 day mark and 360 day mark and how it affects a borrower. 6

12 What Limitations Does A Defaulted Loan Place On You? Yes, so, in the midst of 270, once you get in the 270 day mark, they will officially stamp your loan as defaulted. Once it is in default, you now lost a couple of DANTES, if you will, you would not be able to get any financial aid, or take out any new loans, while you re in default. If you file your taxes, your taxes will be offset. So, if you want to go back to school -- You can not to go get your Master s, and you want to take out loans to facilitate that, and you re in default, you cannot. You will not be able to, no. They won t approve it because of the status of the loan. Now, is this all types of loans? FFEL, everything? All types of loans. You will have to go to school out-of-pocket. Subsidized and unsubsidized? Subsidized and unsubsidized, absolutely correct. 7

13 What Is Wage Garnisment? Couple of other things that you re in danger of is wage garnishment. That doesn t happen right then and there, but if you re defaulted for a longer span of time, then it will slip into wage garnishment. They ll start taking a percentage from your actual paycheck. We ll get into that more specifically soon, to kind of help you guys out. What about, real quick -- and I don t know how far down a rabbit hole we re about to go, but... Let s go. 8

14 What Happens To Your Tax Return? We know that the Department of Education is a government entity. Let s say, on your IRS tax returns -- can they keep any check that you may get as reimbursement from the government come tax time? Right. This is the thing -- when it comes to any other, I would say government assistance or -- funds, when it comes to that -- when it gets to a point of wage garnishment, they can. They can actually garnish your Social Security if it gets that delinquent. Any other government assistance type of things, it really depends. It s kind of iffy, but most importantly, and the only thing that they do start off with, is taking your tax return. So, your tax refund. The refund. You re not going to get it. Yep. Everybody looks forward to that refund. You know, claiming the kids and all that. No, that s going to go straight towards your loans. Wow. See, and that s the other thing -- if you go defaulted on your student loans, make no mistake about it. The IRS is a professional collection company, and they re nasty. 9

15 Oh, yeah. So, if you go and you re due a tax refund, but you re in default of your student loans, that 1500, 2500, or whatever you re owed, you re not going to see it. It s just going to be kind of slid over from -- robbing Peter to pay Paul, in the government s perspective. Oh yes, it s going straight towards that. And one more thing too -- your credit. 10

16 How Does Default Affect Your Credit? Yes, and let s talk about that. So how does that work? Well first of all it s going to start reflecting on your credit when you become delinquent in your student loans. If its more than 90 days or 60 days old, it s going to start reflecting and being sent over to the credit bureaus about late payments and things of that nature. Gotcha. But when you go into default it is going to show that the loans have been defaulted, and it s going to show that negative credit reporting of a high delinquency on your student loans which is going to drop your score. But it is not just the student loans right? The new collection agency will show up as another trade line on that report -- Exactly. -- so you are getting double banged for the same line item, right? Exactly. Yes. So that is really going to hurt the credit score as well, which is why you want to avoid, it s those. They are all really kind of the dangers of going into default and the effects that it has on a person. 11

17 So we know that right now, if -- I wish I had the numbers right in front of me -- but we know that several hundred million dollars in student loans are due and we know that it is the number one type of defaulted loan out there issued. Yes. So lots of people are going into default. Yes. 12

18 What To Do If You re About To Go Into Default So if you are in that situation or you are about to go into that situation -- let s talk about how to get out of it. What can you do right now to take action to take action to avoid getting your wages garnished, avoid getting your tax return taken, avoid some of the ill effects on your credit to get out of that stuff? So, initially, if you are behind at all in your student loan payments -- guys you have 36 months of forbearance time to use at your disposal. What that is, is it s a hold on your loan so that there are no amounts that s due, but if you are past due it will back date and bring you back current. Wait wait. Yes. Let s say that again. Let s give an example. So, lets say that we re 7 months late, and... Well, let s just go with the 270 days, because that s what we have been talking about. We are 270 days late, day 230, 240, we are going to say -- hey look, I know I m late but I haven t used this forbearance. You re saying that if you are late on your student loans, you can request a forbearance, and it will remove the 240 days of non-payment, and bring you... Current. Just use the balance due of what s available on your forbearance month. Yes. It will bring you back current. You will no longer be delinquent. The next statement that you will receive will be only for one new month of whatever your payment amount is because that s the only thing that s going to be due because everything has been wiped away for you. That s the power of forbearance. 13

19 Wow. As long as you have that time to use. If you have 36 months or whatever. As long as you have the amount of months to make up for the past amount, then it can be used to bring you back current. Wow, that s a nice little trick, there. Yes. So you want to inquire and see how much forbearance time you have. Right. So let s say that we don t have any forbearance time left. So, that trick won t work here. So what else can we do to avoid student loan default? 14

20 If you ve exhausted all of your forbearance time, what you want to do is look into getting into an income-driven repayment plan. So, if you re under a payment plan, that s just the standard. That s what the payment was when you first got out of college, you didn t say anything then. That s just what it is and it s always stayed the same. Inquire on getting a payment plan based off your income and family size. If you do that successfully -- you submit the application successfully; you send in the documentation successfully -- if you get approved, do you know that it will bring you back current. The only thing that you have to pay is whatever the new amount you ve been qualified for. So that s another thing. There s regular forbearance and then there s administrative forbearance that s given from the servicer. So, if it s tied to an application that s based off your income, once it s approved, they will use an administrative one while they re processing it to bring you current and the only thing that will be due is your payment. So, an example -- say for instance I m 200 days past due and I m out in the water; I m just out there. I m like Man, I have no forbearance time, what do I do? I submit over for an income-driven application to have it based off my income. Say for instance, I m unemployed or I m part time and I m making very low income. I send that over with the proper documentation; they qualify me for, I don t know, a $20 payment or a zero dollar payment or what have you -- once they process it, they will send you a letter stating -- we have received your request for an income-driven repayment plan. Your payments have now been adjusted to such-and-such. And that next statement -- it s only going to have the total amount due of such-and-such. Under the new income-driven plan. Yes. How To Get A Payment That Will Work For You 15

21 How Consolidation Plays A Roll You ve got to go through the process of consolidating to get into that income-driven plan. Is that accurate? Actually, no. Well, this is the thing. When it comes to consolidation and just doing an income-driven payment plan -- certain loan types only qualify for certain income plans. Gotcha. That s why we encourage to consolidate, because it consolidates everything into one loan, and that one type of loan is eligible for everything. Yeah. See, I m looking at Marques right now cross-eyed. [laughs] So... If you re out there listening to this, and you want a consultation, guys, we can do that for you. Please. Just go to their website, USStudentLoanCenter.org, and you can request to talk to somebody there, but it can get a little tricky. 16

22 The rules to the game are not... I mean, it s the government, guys. It s not easy. I mean, the Tax Code s 55,000 pages. The student loan is not something easy, either, with all of the changes and red tape, so more than happy to chat with you about that. Don t make the mistake of just not doing anything. Yes. Not doing anything is only going to make your situation worse. Yes. As much as the student loan default number is right now, I know right now that there are people that are just running from it, and that will really, really hurt you, come time -- these are 25, 30-year-old people who still have a long life to live, where they re going to need financing options. It s going to crush you if you don t take care of it. Yes. So I think that this episode in particular can be very valuable, if you know what to look for, know what to expect. If we don t accomplish anything in this podcast episode, it s to take action. Talk to somebody who knows what they re doing, or get on the phone with your servicer, and figure it out. I foresee with everything going on right now, this becoming a compounding problem. It s not going to get better. Oh yeah. It s not going to get better. So... But, is there anything else specifically about how to get out of default? I know we ve got the forbearance trick, if you want to call it that, and we ve got the repayment plan changed to an income driven plan. Anything else? 17

23 Benefits of Consolidation You have consolidation, too as well that we dabbled into a little bit. Bringing everything -- it will actually bring you out of default if you are defaulted. OK. But if you re delinquent, once the loan s are consolidated, it s considered a brand new loan -- one brand new loan, brand new pay history, it is brought back current. OK. And basically -- buys out -- the other note. Yes. Right? And the status will say paid in full -- Paid in full. -- on that line. Yes, you can literally call your old servicer and they ll say -- you no longer have a balance with us. Right. -- because it s been consolidated. So whoever the new servicer is that you consolidated through, that s where your payments are going to go and that s your new pay history, your new beginning, I ll say. So, consolidation is an option. 18

24 The last option. If you ve already consolidated, there is no other loans to consolidate, you have the option of going through rehabilitation if you defaulted. And all that is, is that you are coming into this type of agreement with the collection agency that you re going to make a payment for a certain amount for a span of nine months. After the ninth payment is when they will take the loans out of the collection agency, they will put it back with the department of education and you ll be brought back current. Actually takes away from the negative credit reporting too as well, if you go through rehabilitation. Gotcha. But, you only can do it one time. Yes, that s the bugger about that one. Yes -- is you can only do it one time in your life. Yes. So, you ve got a couple options. Rehab has it s own -- it needs it s own little segment so next week guys we re going to hit on rehab. Absolutely. What Is Rehabilitation? 19

25 And, if you re already defaulted -- how to go through that process and what to expect and what that looks like. But anything about default? What to look out for, that you think is important, Marques, that we need to hit on today before we wrap up? I believe we touched on a lot of everything that you need to know. You need to know that you have options. Yes. You touched on it about seeking help. Because a lot of people think they re backed into the corner and I should just keep running and let them find me. But it s just going to get worse. You should take action now. You have options; you can place the loans on forbearance, if you re past due it will bring you current. You can change that payment plan; you can consolidate it so you can have a brand new loan, start off fresh. And there s always rehabilitation. Even if your wages are being garnished, you can still get out of that situation. There is always some sort of a way out, I would say. That s going to be interesting to go through next week. I m looking forward to it. Oh yeah. We re going to tackle it, guys. Thank you for listening. We re really here to help, so I hope you guys really soak it all in. Know that you have options, and don t let this student loan beast... Bury you. -- bury you. There is a way. Alright guys. We ll catch you next week. If you have any questions about default -- how to get out of it when your in it, what to do about it -- again, go to the website usstudentloancenter.org, and chat with somebody that s more than happy to walk you through the process. Can t wait to go through the rehab process next week. Hope you enjoyed. And we ll see you next time. 20

26 So What s Next? Still have questions or need help deciding what to do next or what is the best option for you? Our goal at US Student Loan Center is to provide the best information out there on student loans so borrowers are confident with the financial decisions they make about their debt. Call us at or visit to find out your relief options today 21