The University of Texas Rio Grande Valley

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Don't Default

The University of Texas Rio Grande Valley Default Prevention Department provides information to students who may be at risk of defaulting on their loans. Its purpose is to give advice on how to avoid default, educate students on the consequences of default, and help former students get out of default.

You are responsible for repaying your student loan(s) even if you do not graduate, have trouble finding a job, or are not satisfied with the education received. If no payments are made on the student loan for 270 days and special arrangements are not made with the lender to get a deferment or forbearance, the loans will go into default. Defaulting on student loans has serious consequences.

Note that student loans are now generally NOT dischargeable through bankruptcy.

Almost three-quarters of students who default on their loans have done so after withdrawing from school and failing to complete their studies.

Preventing Default

You must understand your options and responsibilities before taking out a loan.

You should make your payments on time.

You must notify your lender, servicer, or UTRGV promptly of any changes that may affect the repayment of your loan, such as:


  • A change of address
  • Any name changes (e.g., because of marriage)
  • Graduation or termination of studies
  • Leaves of absence
  • Transfers to another school

In the case of financial difficulties, you should consider applying for a deferment or forbearance on the loans. It is better to defer payments than to go into default. The lender can answer questions regarding these options while the borrower is still making payments, before defaulting on a loan. Deferment or forbearance is not available after a default.

If you have trouble making payments, the lender may be able to suggest alternate repayment options, such as graduated repayment, income sensitive repayment, and income contingent repayment.

You can also consider using a consolidation loan to combine all the educational loans into one big loan. This allows for payments to be sent to just one lender. Furthermore, it MAY be possible to extend the term of the loan to reduce the size of your monthly payments.

Keep careful records. Put copies of all letters, canceled checks, promissory notes, notices of disbursement and other forms in a file folder.

Finally, you should not to be afraid to contact the UTRGV Default Prevention Department for help. The department works with people every day on helping them avoid default. It can suggest different solutions. The department can provide forms and can provide a list of lenders for students who have borrowed from more than one lending institution.

Postponing Repayment

There are two options for postponing repayment of student loans—deferments and forbearances. If you are thinking about defaulting on student loans, ask the lender whether you are eligible for a deferment or forbearance before you default. You cannot receive a deferment or forbearance if your loan is in default. If you default on your loans, you are no longer eligible for deferments and forbearances.

During deferment, the lender allows the borrower to postpone repaying the principal of the loan for a specific period of time. Most federal loan programs allow former students to defer their loans while they are in school at least half time. For Perkins Loans and Subsidized Stafford Loans, no interest accrues during the deferment period because the federal government pays the interest. For other loan programs, such as the unsubsidized Stafford loan, the interest still accrues during the deferment period.

Deferments are commonly granted for:

  • students who are enrolled at least half time in an undergraduate or graduate program
  • disabled students who are participating in a rehabilitation training program
  • unemployment or economic hardship

Other deferments may also be available; contact the lender for details.

Deferments are NOT granted automatically. You must submit an application as well as documentation that supports the request. Keep paying on the student loan until you have been notified that the deferment has been granted. If continuing at UTRGV, you must submit an In-School Deferment Form to the Default Prevention Department at the Office of Student Financial Services. (Payments will NOT automatically be deferred just because you have enrolled. You have to submit the form.) A Verification of Enrollment is sent to the lending institution(s) after you have submitted the form to the department.

Forbearance allows postponement or a reduction in payments, but the interest charges continue to accrue. The federal government does not pay the interest charges on a loan during forbearance. Interest charges during the forbearance period are the responsibility of the borrower. Forbearances are typically granted in 12-month intervals for up to three years.

Forbearances are not granted automatically. An application and documentation to support your request for a deferment must be submitted. Forbearances are granted at the lender's discretion, usually in cases of extreme financial hardship or other unusual circumstances when you do not qualify for a deferment. Payments on the student loan should not be stopped until after being notified that the forbearance has been granted.

Consequences of Default

If you default on a student loan:

  • Loans may be turned over to a collection agency.
  • You will be liable for the costs associated with collecting of the loan, including court costs and attorney fees.
  • You can be sued for the entire amount of the loan.
  • Your wages may be garnished. (Federal regulations limit the amount that may be garnished to 10% of your take-home pay.)
  • Your federal and state income tax refunds may be intercepted.
  • The federal government may withhold part of social security benefit payments. (The U.S. Supreme Court upheld the government's ability to do this, without a statute of limitations, in 2005.)
  • Defaulted loans appear on your credit record, making it difficult to obtain an auto loan, mortgage, or even credit cards—a bad credit record can also affect your ability to find a job.
  • You won't receive any more federal financial aid until the loan is paid in full or arrangements have been made to repay what is already owed and you have made at least six consecutive, on-time monthly payments. (You will also be ineligible for assistance under most federal benefit programs.)
  • You will be ineligible for deferments.
  • Federal interest benefits will be denied.
  • You will not be able to renew any professional licenses you hold.
  • And of course, you will still owe the full amount of the loan.

Getting Out of Default

To get out of default, arrangements must be made with the servicer or lender to repay the loan. Once six regular payments have been made, you will be eligible for additional Title IV aid. After 12 regular payments and you have applied for and received "rehabilitation," you will no longer be considered in default. At that time, record of the default will be removed from reports to credit reporting bureaus.

The Default Prevention Department can provide the names, addresses, and telephone numbers of lenders for help and advice about repayment problems.

Collection Agencies

When in default on student loans, the lender or guarantor may use a collection agency to collect the loan. The collection agency's costs are added to the amount due, and the borrower is required to repay them in addition to the amount due on the loan.

Federal regulations state that a borrower who has defaulted on his or her student loans may be required to pay reasonable collection costs in addition to other charges, such as late payment fees. What constitutes reasonable is not very well defined.

Federal regulations concerning campus-based loan programs, such as the Perkins Loan, suggest that collection costs may not reasonably exceed 30% of the principal, interest and late charges collected on the loan, plus any court costs, for first collection efforts. For second collection efforts, the percentage increases to 40%. For Perkins loans made from 1981 through 1986, many promissory notes limited collection costs to 25% of the outstanding principal and interest due on the loan. Since then, however, promissory notes have not had such restriction.

For loans held by the U.S. Department of Education (e.g., Federal Direct Stafford Loans), the department assesses collection costs at a rate of 25%.

When consolidating a defaulted loan, collection costs of up to 18.5% of the outstanding principal and interest may be included in the amount consolidated. A collection agency might be willing to reduce its fees to 18.5% if the student consolidates his or her loans, but the collection agency is under no obligation to do so. If the student consolidates his or her loans and the collection agency does not reduce its fees, the student must pay the amount in excess of 18.5%.

If a payment schedule is made within 60 days of default, some collection agencies will waive or reduce the collection fee.

Overall, it appears that collection costs can legally be as high as 40%, perhaps even higher.

If you believe the collection costs are excessive, you should ask the collection agency to provide a detailed itemization of the actual costs incurred in collecting the loan. Although federal regulations are murky on this point, it appears that the costs must be based on either the actual costs incurred in collecting the loan or the average costs incurred for similar actions taken to collect loans in similar stages of delinquency.

The U.S. Department of Education Debt Collection Service publishes a Guide to Defaulted Student Loans to help students repay their defaulted student loans.

Sample Direct Loan Repayment Schedules

Although you may select or be assigned a repayment plan when you first begin repaying your student loan, you can change repayment plans at any time.

Contact your loan servicer if you would like to discuss repayment plan options or change your repayment plan. You can get information about all of the federal student loans you have received and find the loan servicer for your loans by logging in to My Federal Student Aid.

Before you contact your loan servicer to discuss repayment plans, you can use our Repayment Estimator to get an early look at which plans you may be eligible for and see estimates for how much you would pay monthly and overall.

Learn About Loan Forgiveness Options Now

Did you know that some student loans may be forgiven? There are some loans that can be totally or partially forgiven. There are loan forgiveness programs that you may qualify for at the time of repaying your loans.

  • Texas Be-On-Time Loan
  • Perkins Loan
  • Federal Student Loans Forgiveness Programs

Loan forgiveness is the cancellation of all or some portion of your remaining student loan balance. If your loan is forgiven, you are no longer responsible for repaying the remaining portion of the loan. However, some forgiven loans must be reported to the IRS as taxable income.

Forgivable Loan: TEXAS Be-On-Time Loan

The Texas B-On-Time Loan is a zero-interest loan available for eligible Texas students. If you meet specific requirements, the entire loan amount can be forgiven upon graduation. Please visit the Texas Higher Education Coordinating Board website for TEXAS Be-On-Time Loan initial and renewal eligibility, forgiveness requirements, and additional information.

Forgivable Loan: Federal Perkins Loan

A Perkins Loan is a low interest federal loan offered to eligible undergraduate and graduate students enrolled at least half time (six hours) and with exceptional financial need. Perkins Loan borrowers are eligible for loan cancellation for teacher service at low income schools and under certain other circumstances.

Please visit the Department of Education website for more information regarding Perkins loan cancellation and discharge.
 

Forgivable Loan: Federal Direct Loans

Public Service Loan Forgiveness 
This program allows you to qualify for forgiveness of the remaining balance of your Direct Program loans after you have served full time at a public service organization for at least 10 years, while making 120 qualifying payments. Since you must make 120 monthly payments on your eligible federal student loans (beginning after October 1, 2007) before you qualify for the loan forgiveness, the first cancellations of loan balances will not be granted until October 2017. Please visit the Department of Education website for more information on forgiveness of direct loans.

Teacher Loan Forgiveness
This program is available for teachers who work in low-income areas. Borrowers must teach for five consecutive, complete years at an eligible school, and the program can forgive up to $5,000 of federal student loan debt, including Direct Loans or Stafford Loans ($17,500 for certain highly qualified secondary math and science teachers, and elementary/secondary special education teachers). Please visit the Department of Education website for more information on loan forgiveness for teachers.