Failing to make payments on a loan when due can result in the loan becoming delinquent, which can put you at risk of defaulting on the loan. The lending agency will make repeated attempts to contact the borrower by telephone and by letter to resolve repayment problems and prevent default.
Borrowers are in default if the loan becomes 180 days delinquent (or if they fail to meet any other terms of the promissory note for 180 days) and the lender concludes they do not intend to honor their obligation to repay. Before reporting a default to a national credit bureau, the lender gives the borrower written notice of its proposed actions, an opportunity to enter into a repayment agreement, and an opportunity for a review of the loan’s status. Borrowers in default are ineligible for student financial aid funds but can take the steps to have eligibility reinstated.
How to Reinstate Financial Aid Eligibility
A borrower may repay the defaulted loan in full or make satisfactory repayment arrangements, defined as six consecutive, voluntary, on time, full monthly payments that are reasonable and affordable given the borrower’s financial situation. On time means within 15 days of scheduled due date. Voluntary payments are those the borrower makes directly, whether or not a judgment exists. Voluntary payments do not include these obtained by income tax offset, garnishment, or income or asset execution.
For purposes of regaining eligibility, a student may make satisfactory repayment arrangements on a defaulted Direct loan only once. For purposes of consolidating a defaulted loan, three payments are required instead of six.
If a borrower regains eligibility during an enrollment period, (for example, if the sixth payment under a satisfactory repayment arrangement is made after the start of an enrollment period), the borrower regains eligibility for the entire academic year.
A borrower who makes satisfactory repayment arrangements and regains eligibility must continue with the agreement according to the lender’s terms. If a borrower is required to continue payment and is unable to do so while attending school they should request a forbearance (a deferment is not an option for a defaulted loan).