More than 44 million Americans have taken out loans to pay for school, which can seem more necessary, and yet also costs more, than ever. But unlike opting for deferment or forbearance, which temporally suspend payments, defaulting on a student loan should be a last resort, since it can have severe, long-lasting consequences. After 90 days past due, the delinquency is reported to the three major credit bureaus. When a loan defaults, it dramatically damages your credit, affecting your ability to purchase a car or put a down payment on an home."The late payments and default will stay on your credit report for years," Shannon Mc Nay, of Student Loan Hero, tells CNBC Make It."Because if you default on your loans, [it] could set you back financially for years to come." If you have already defaulted, "contact the organization that notified you as soon as possible," the U. There are three common options that could help remedy defaults: Rehabilitation, consolidation and repayment in full.For rehabilitation, you must agree to make a series of payments over 10 consecutive months, based on your income.
These are agreements between borrowers and lenders that can erase defaults from the borrowers’ records as long as they stick to a strict repayment plan, typically for 10 consecutive months.If your wages are already being garnished, the student loan rehabilitation process can stop the income seizures and return control to you, but you must take the first step by contacting your collection agency and requesting rehabilitation.If your loan enters a rehabilitation plan, your credit history will be repaired.It is prudent to estimate the amount of income needed to repay loans and determine whether your salary can handle that amount.For most borrowers, the first line of defense is avoiding default.Defaulting on a loan can add years to a repayment schedule and result in collection fees that are added to the loan balance. They include forbearance and deferment, which allow borrowers to temporarily stop or reduce payments.Federal student loans allow borrowers to defer payments for a long as three years if they have financial hardships or are enrolled in post-secondary school.Your eligibility for loan deferment, forbearance and forgiveness will also be restored.Direct, FFEL, Perkins, Stafford, PLUS, Grad PLUS, Consolidation, SLS, HPSL and NSL – are eligible for rehabilitation.The traditional rehabilitation process is based on a 10-month plan; but can last as little as 4 months or as long as 12 months, depending on the lender.Rehabilitation of a federal Perkins Loan is accomplished in nine consecutive months with payments determined by the loan holder. Ford Federal Direct Loan Program and the Federal Family Education Loan Program, operate similarly, but require nine payments to be made in 10 months.