Defaulted on student loan..now what??

[trippingbillies]

Ok, it turns out that I have defaulted on a student loan. I want to reach out to the Department of Education and work out a payment arrangement because a) It is the right thing to do and b) I need to be eligible for Pell Grants and the like in the fall when I start nursing school.

That said, I am afraid to pick up the phone and call. Why? I am scared that if I call attention to my situation they will take my upcoming tax refund. I need that money.

Has anyone had experience with this? If you call the DOE and work out an arrangement will they take your refund anyway

[claras_mom]

No experience with it, but my bet is the longer you wait, the less sympathetic they'll be.

Make the call.

[Evan&Anna's_Mom]

We haven't been in this exact situation (our tax refund always gets taken for back taxes...) but both DH and I have had student loan problems in the past. We've found people to be very accommodating if you ask nicely. We've taken deferrals, payment arrangments, interest-only payments, consolidations (2 people, 5 degrees, lots of loans). But they will only work with you if you ask -- otherwise you do risk them garnishing tax refunds or, worse, your paycheck. Call.

[Drummer's Wife]

I think they will take your tax refund regardless of if you call or not. Well, what I mean is that if it's to the point of being defaulted in time for them to sieze your money before you file, calling them is not going to speed up that process. So, I think you have nothing to lose by calling. If you start making reasonable payments (that they are satisfied with), they won't take your refund, as far as I understand it. If you ignore it, and don't attempt the make payments, they absolutely will - if not this year, then next.

I would google this, if you haven't already, or ask over on creditboards to ease your fears before calling -- but I really do think you should pick up that phone. I am positive they deal with this numerous times a day, especially now wi/the economy and right after the holidays. They are going to appreciate someone who is aware of their loan default status over someone who isn't paying attention or caring, and gets it to the point where they have to garnish either wages or taxes.

Best of luck.

ETA: Since you are hoping to get fin aid for fall - I think you really have to deal with this now. With defaulted loans, you will not receive pell grants until it is either paid off, or in good standing with the dept. of ed. This I am pretty sure of, b/c I just last night went thru "loan counseling" b/c I hope to apply for nursing school, and need help paying for childcare, so I tried my best to understand the terms for sub and unsub. loans.

[bobandjess99]

I've been in default for almost a decade, and they've never touched our tax return.

[Hey Mama!]

I defaulted in 2007 when my husband and I were seperated. I got a call from the dept of ed, they were threatening to garnish my wages. I was able to work out a payment plan, had to pay a certain amount on time for a year and they would pull it out of deferment. I paid but this summer when I applied for financial aid I had to pay another $400 before I could receive any federal financial aid. They never took any income tax refunds but I file jointly with dh so I don't know if that has anything to do with it.

[AndrewsMother]

Call your lender. If your default was recent, I doubt you will experience a garnish this year, but call to inquire.

Based on experience, you have to make timely payments for 6 to 9 months before you are eligible for FA.

When I made my payment arrangement, it was based on my income, which was zero, so for 6 months I had to pay $0 before I was eligible for any type of government sponsored FA. Your experience my vary.

If you are at the point where your income tax refund is subject to default, file married but separate, or file Injured spouse Form 8379 to protect the refund of the non owing party.

[lauraqs]

I have been there! I had to be honest with my husband and tell him how badly my finances had gotten, we've had separate accounts because of my horrible credit. I'm not saying this applies to you but I have a definite problem with spending. I have relinquished control of my account to my husband and he manages my spending. I hated it at the beginning but I've come to terms that I have a serious problem, like many addicts, and have lived in denial for a long time. I finally got the courage to call the Department of Education this week. I thought they were going to garnish my wages. I spoke with several people who were all very nice and non-judgmental. I was prepared to spill my guts and be honest about why I had gone so many years without paying. They didn't ask for a reason. They quickly got me on a payment plan. Yes, they will be garnishing my income tax. By rule, if you go into default and do not setup a payment plan by August of the previous year, they will take your income tax return. I had not dealt with this because I usually owe taxes every year. By making regular payments on the date I designated, the 25th of every month, for 9 months, my account will taken from their collections department and sent back to the Direct Loans department. I can then also qualify, if I wish, for new loans. Aaanyway, sorry if this is longer than you wanted to read but for me it's important I come to terms with my problem.

[trippingbillies]

Originally Posted by lauraqs

I have been there! I had to be honest with my husband and tell him how badly my finances had gotten, we've had separate accounts because of my horrible credit. I'm not saying this applies to you but I have a definite problem with spending. I have relinquished control of my account to my husband and he manages my spending. I hated it at the beginning but I've come to terms that I have a serious problem, like many addicts, and have lived in denial for a long time. I finally got the courage to call the Department of Education this week. I thought they were going to garnish my wages. I spoke with several people who were all very nice and non-judgmental. I was prepared to spill my guts and be honest about why I had gone so many years without paying. They didn't ask for a reason. They quickly got me on a payment plan. Yes, they will be garnishing my income tax. By rule, if you go into default and do not setup a payment plan by August of the previous year, they will take your income tax return. I had not dealt with this because I usually owe taxes every year. By making regular payments on the date I designated, the 25th of every month, for 9 months, my account will taken from their collections department and sent back to the Direct Loans department. I can then also qualify, if I wish, for new loans. Aaanyway, sorry if this is longer than you wanted to read but for me it's important I come to terms with my problem.

This is pretty much what happened to me when I called in on Tuesday. But what I don't get is how the other poster has gone ten years with no repercussions. What is that about????

[trippingbillies]

Originally Posted by bobandjess99

I've been in default for almost a decade, and they've never touched our tax return.

????? are you sure you dont mean deferment or forebearance????

[pinksprklybarefoot]

I just rehabilitated a student loan that I defaulted on. I had to make a sizeable down payment (over three months), then six timely payments after that. It took about a year for the whole thing to be all said and done. I started the process in October of 2008 and the National Student Loan Database (I think that is what it is called) was updated in late August. I will be receiving a Pell grant and Stafford Loans for this semester at the end of the month.

If you want more details, feel free to PM. The whole process was relatively painless with only a few hoops to jump through. Everything happened like they said it would. Good luck!