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Stack of bills stamped overdue and final notice

With student loan debt now totaling $1.3 trillion in the United States, the student loan crisis has reached a fever pitch and now affects more than 40 million Americans. To compound the crisis, the Consumer Financial Protection Bureau reports that one in four borrowers are in delinquency or default on their student loans. Student loans are considered in default when a borrower hasn’t made in payment in more than 270 days.

Declaring bankruptcy does not eliminate student loan debt.  And, the federal government has the power to garnish wages, tax refunds and even Social Security to recoup payment.

But what many borrowers don’t realize is that there may be many options available to make student loan repayment more manageable. Here’s what to do if your student loans are in default (or headed in that direction):

Get clear information on your default

If you’re unsure which collection agency holds your loan, how much money you owe or other important details about your student loan debt, contact the Department of Education’s Default Resolution Group at 800.621.3115.

Don’t delay

If you’re in default, the government can garnish 15 percent of your paycheck and tap into your tax refund. What’s more, the longer your loans sit in default, the higher the balances grow with collection fees. Unfortunately, this will damage your credit rating. Contact your loan servicer to explain your situation, or reach out to a student loan counselor for step-by-step guidance and a detailed review of all applicable repayment options.

Rehab your loans

If paying the loans in full isn’t possible, student loan rehabilitation may be a good option. Once you make nine consecutive payments, which are based on your discretionary income, the servicer removes the default status. At that time, the loan is considered rehabilitated and may be eligible for other repayment programs.

Consolidate your debt

Loan consolidation allows you to pay off your loans and creates a new direct consolidation loan with a fixed interest rate. First, you must agree to the terms of the new direct loan, including repaying it under an income-driven plan. After three consecutive payments, you can select a different repayment option if income-driven isn’t right for you. Consolidation doesn’t remove the defaulted status from your credit report. But it does zero out old loans and reflects a new loan line item.

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