Myth or fact: Any payment prevents default

I've heard people suggest that even a regular monthly $20 on your student loan will prevent them from being able to place it in default. Even if say your minimum payment were $300. Is this true - that as long as you pay something they can't put you in default?

Read your loan agreement. Default is usually defined. Generally speaking, default occurs when you fail to make required payment on a loan or are in other material default (such as not keeping insurance). Making a token payment, only resets the Date of Last Activity and extends the Statute of Limitations (SOL).

I will have to double check...but you do bring up a distinction that is important for student loans.

There is a difference between being Delingquent and being in Default.

If at all possible, you want to avoid being in default as it will limit your options for dealing with the student loans. Being delingquent is ok.

However, off the top of my head, I forget when a student loan is considered in default, but I don't think making token payments prevents it from happening.

I will have to double check...but you do bring up a distinction that is important for student loans.

There is a difference between being Delingquent and being in Default.

If at all possible, you want to avoid being in default as it will limit your options for dealing with the student. Being delingquent is ok.

However, off the top of my head, I forget when a student loan is considered in default, but I don't think making token payments prevents it from happening.

I've heard it suggested a lot. It's interesting because default is usually defined as 270 days without payment. So what if a debtor pays $20 a month or an even better question, what if a debtor pays exactly one full payment every 250 days for the rest of their life? In theory could you forever avoid default?

Interesting side note I was once in danger of default and in fact technically was in default already. The 270 (or whatever it is) mark had passed but sent in a deferment fax before they could finalize it as being in default. I also made a payment between the expiration of the 270 day limit and the lender submitting the default claim. The loan was from a school in Illinois; in reading and researching I found that if a payment were made between the expiration of the 270 days and the time when the lender actually submits a claim of default to the government, it can not be considered in default and I believe the process must start over or osmething to that effect (Illinois would not accept the lender's claim for reimbursement for default as valid if a payment was in fact made during the window). I will look to see if I can find that a document which specifies this.

Read your loan agreement. Default is usually defined. Generally speaking, default occurs when you fail to make required payment on a loan or are in other material default (such as not keeping insurance). Making a token payment, only resets the Date of Last Activity and extends the Statute of Limitations (SOL).

For the government backed student loans (which I have) I don't think any SOL applies and there no way of getting out of them except in extreme cases though.

Found it - sort of. This is about a payment after the default claim, not in between the technical 270 days and filing of the default claim -- maybe I was jsut confused [in Illinois]:


Payments after Default

If the lender receives a payment after a default claim has been filed but before the claim has been purchased by ISAC, the lender must determine whether the claim should be recalled. A lender is required to recall a default claim if:

* The loan is brought 210 or fewer days delinquent by the lender’s receipt of a payment or by the lender’s approval of a forbearance agreement. A forbearance agreement must include the borrower’s agreement to repay and, in the case of a discretionary forbearance, should bring the account current.

* The borrower requests a deferment and submits all necessary documentation, and the documentation indicates that the borrower’s eligibility began before the date of default. An administrative forbearance may be granted to cover any period of delinquency occurring before the deferment start date.

* The borrower requests a mandatory forbearance and submits all necessary documentation, and the documentation indicates that the borrower’s eligibility began before the date of default.

* The lender becomes aware of the borrower’s eligibility for a mandatory administrative forbearance (disaster relief, military mobilization, etc) and the borrower’s eligibility began before the date of default.

* The lender receives information or documentation (such as continuous in-school enrollment verification) that eliminates the default status.


http://www.collegezone.com/lenderzone/1106_3846.htm

Still doesn't answer the original question but an interesting side note of research. I will look and see if I can find something myself later.

For the government backed student loans (which I have) I don't think any SOL applies and there no way of getting out of them except in extreme cases though.Ouch, I forgot that Government Backed Student Loans are like debt that won't ever die!

I think death qualifies as one of those cases, right? :)

I keep seeing language such as this:


A loan is considered in default when no payment has been made for 270 days, although the lender notifies OSAC whenever a loan is more than 60 days delinquent. Once a default claim is filed the loan can be sold to a collection agency, and once that happens there's little OSAC can do to help the borrower.


http://www.thefreelibrary.com/Student+loan+default+avoidable-a082788040

Which suggests that even a $1 payment would keep the loan out of Default technically. Kind of hard to believe. It's actually a very interesting and relevant question.... will research more.

In order to pay less than the minimum on your government backed student loans, you have to go into forbearance. You can be in forbearance indefinately, renewable every year, but you have to call the loan guarantor (ie, direct loans, etc) and ask for a forbearance. You can do this on the website for the first five years, but after that you have to call to get the forbearance. Once the loans are in forbearance, the interest accrues but you can either pay nothing, or pay a less than minimum payment.

You have to give a reason for the forbearance, (ie, economic hardship), but the forbearance will be automatically granted. I know this because I kept my loans in forbearance for a couple of years, several years back.

Forbearance is not the same as a deferment. It is granted once a year, and interest accrues during forbearance. But that is how you would pay less than minimum without going into default.

Also you can't be in default to request forbearance.

The best way to keep from going into default is to request forbearance before the loan defaults, and then if you want you can either pay a token payment, or nothing until you renew the forbearance a year later.

Thanks. :) No I'm actually okay I was just granted a 8 month voluntary forbearance after a previous 12 month Economic Hardship Deferment ran out.

The question is more academic to me but I guess also just potentially a way to help people and possibly myself if I need to use it later on. I was always kind of curious about it before when I was dangerously close to default...

Thanks. :) No I'm actually okay I was just granted a 8 month voluntary forbearance after a previous 12 month Economic Hardship Deferment ran out.

The question is more academic to me but I guess also just potentially a way to help people and possibly myself if I need to use it later on. I was always kind of curious about it before when I was dangerously close to default...

With a combination of forbearance, and taking classes part time at a community college, you could pretty much keep from paying on your loans indefinately, lol, but the interest would build up. I did the math for myself. I have over $100k in student loans. It would cost me $300 a term (ie four months) to take half time classes at a community college. It was costing me $1500 a month to pay on my loans before I got laid off. I could conceivably save $18,000 a year just by taking "intro to basket weaving" online at the community college distance learning center. :cool:

I decided to go for a career change instead, but this was definitely something I was considering at one time....

I could conceivably save $18,000 a year just by taking "intro to basket weaving" online at the community college distance learning center. :cool:



That's called "thinking like a lawyer". :)

That's called "thinking like a lawyer". :)

I am going to take that as a compliment! :D

I reread my last post and it is a bit unclear, so let me just tighten the reasoning for those that might want alternatives to default on their student loans.

1. Forbearance is always an option and is used when you are NOT in school or under any other deferment.

2. Taking classes at least half-time at a degree granting college, including community colleges, will defer your student loans for the entire time you are in the program. This option would be used INSTEAD of a forbearance. For example, I was planning on working full time, and taking 6 credit hours at my local community college (2 online courses), the cost savings over paying my loan payments would have been significant. This option only makes sense if you have a higher income and are stuck with high loan payments.

I keep seeing language such as this:



http://www.thefreelibrary.com/Student+loan+default+avoidable-a082788040

Which suggests that even a $1 payment would keep the loan out of Default technically. Kind of hard to believe. It's actually a very interesting and relevant question.... will research more.

The problem is that's just someone else's wording, it's not the law. Here's the official wording:

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a Federal Family Educational Loan (FFEL) program loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments or 330 days in the case of a loan repayable in less frequent installments.

http://www.ed.gov/offices/OSFAP/DCS/default.html

The default will persist until you make the full required payment, so clearly paying anything less will not help.

I am going to take that as a compliment! :D


As it was meant!

You could stay in school the rest of your life. Fail and retake Intro To Basket Weaving every semester for 25 or 30 years! I never thought of that.

The problem is that's just someone else's wording, it's not the law. Here's the official wording:

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a Federal Family Educational Loan (FFEL) program loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments or 330 days in the case of a loan repayable in less frequent installments.

http://www.ed.gov/offices/OSFAP/DCS/default.html

The default will persist until you make the full required payment, so clearly paying anything less will not help.

So making even a full payment does not reset the 270 day default clock? I read the above and it still does nto seem very clear cut.

So making even a full payment does not reset the 270 day default clock? I read the above and it still does nto seem very clear cut.

It doesn't reset the clock completely, but it sets it back a month. If you are 8 months behind and you make a full payment, then you would be considered 7 months behind. That one payment would basically buy you an extra month.

Another way to look at it is that if your default has persisted for 120 days, you make a full payment and 30 days will be removed from the "clock" to put you at 90 days. Each full payment you make will remove another 30 days. You could make several small payments, but until they add up to a full payment the 30 days won't be removed from the ticker.

As it was meant!

You could stay in school the rest of your life. Fail and retake Intro To Basket Weaving every semester for 25 or 30 years! I never thought of that.

Yes, this is a huge part of why I'm back in grad school again. No loan payments.

Except this time I got wise, and instead of taking out loans, they are paying me to go to school.

:yahoo:

You could stay in school the rest of your life. Fail and retake Intro To Basket Weaving every semester for 25 or 30 years! I never thought of that.

Actually, it can be even better than that. If you've never been in repayment, after the basket weaving course is over you get an additional automatic 6 month deferment. So you only have to take a course two out of every three semesters.

-----
The problem is that's just someone else's wording, it's not the law. Here's the official wording:

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a Federal Family Educational Loan (FFEL) program loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments or 330 days in the case of a loan repayable in less frequent installments.

http://www.ed.gov/offices/OSFAP/DCS/default.html

The default will persist until you make the full required payment, so clearly paying anything less will not help.

The official wording of a guideline is also not the law, and this issue is still not clear. The official wording says "default occurs on a Federal Family Educational Loan (FFEL) program loan after a default has persisted for 270 days..." That doesn't make sense. What does it mean that a default occurs after there's already been a default for 270 days? Did they mean to say: "default occurs on a Federal Family Educational Loan (FFEL) program loan after a delinquency has persisted for 270 days..."?

What's more, the link at http://www.ed.gov/offices/OSFAP/DCS/default.html says nothing about distinguishing between full and lesser payments. The question is, if a lender cashes your check for a non-full payment, are they still entitled to claim delinquency, or default? Or does acceptance indicate satisfaction on their part and imply a contract? For example, in all the jurisdictions I know of, if a landlord accepts a partial rent payment, they can't evict you for non-payment of rent. If they want to evict a non-payer, they have to refuse all but the full and proper payment, or else the judge will throw the case out due to the landlord's agreeing to an implicit contract to maintain tenancy. I don't know if the analogy holds because student loans debts have a logic unto themselves, but the Facing Loan Default guide doesn't answer the question.

It doesn't reset the clock completely, but it sets it back a month. If you are 8 months behind and you make a full payment, then you would be considered 7 months behind. That one payment would basically buy you an extra month.

Another way to look at it is that if your default has persisted for 120 days, you make a full payment and 30 days will be removed from the "clock" to put you at 90 days. Each full payment you make will remove another 30 days. You could make several small payments, but until they add up to a full payment the 30 days won't be removed from the ticker.

What's your source for this information? Will a payment that's less than full also "buy you an extra month"?

What's your source for this information? Will a payment that's less than full also "buy you an extra month"?

I'm very curious about this. Everything I see seems to indicate that a default is 270 days of NO PAYMENT. If someone makes a payment -- even if $20 -- then in my opinion obviously that is a payment.

A lot of the websites talk of default being the last choice after a "debtor has not made a payment for at least 270 days". I realize that these sites aren't legal documents but it seems very strange given that wording that someone who makes $20 payments each month (with $300 minimums) could go into default.

I tried looking at my Sallie Mae loan online to read the promissory note but it appears they don't have that available? I wish I could find a definitive answer to clear this one up.

I think many of us (self included) are perhaps guilty of advancing what we THINK it should be but I haven't seen anyone provide any reasonable proof yet for what it actually is. We need that. I can't believe this has never came up before.

As it was meant!

You could stay in school the rest of your life. Fail and retake Intro To Basket Weaving every semester for 25 or 30 years! I never thought of that.

I guess there might be risk of the laws or allowed deferments changing in the future though, no? If one was doing this for say ten years and the bottom fell out and this seeming loophole were closed, I'd hate to be them!

I guess there might be risk of the laws or allowed deferments changing in the future though, no? If one was doing this for say ten years and the bottom fell out and this seeming loophole were closed, I'd hate to be them!

Why would you hate to be them? Once a deferment is used up, (which under current law it will never be up) you can go into forbearance. And it's not really a loophole in my opinion. As long as you are in school, any degree granting school, including a community college, for at least six credit hours a semester, and are in good academic standing, you get a deferment. And for many gov't backed loans, (the subsidized stafford loans and perkins loans) the gov't pays your interest while you are in school.

You have to maintain a C average and be in "good academic standing", but my guess is that getting a C in an online course in basketweaving should not prove too difficult. :cool:

In my situation before I was laid off, it was a truly viable option. My student loan payments were $1,500 a month. The cost of six credit hours at a community college would have been $100 a month or a bit less. Yes, maybe I would have had 32 associate's degrees at the end of the road, but that is ok with me. As I said in an earlier post on this thread, this would only be an option for those who have a huge amount of student loan debt and have a relatively high income.

I located a sample promissory note, here is a snip from it:


I do not make installment payments when due, provided my failure has persisted for at least 270 days for payments due monthly or 330 days for payments due less frequently than monthly;


http://mappingyourfuture.org/downloads/promnote.pdf

270 days seems to be a definite and literal period of time stated.

However it does say ".. make installment payments when due ...".

Hmmm?

Again if I wait 250 days and then make a full installment payment then my failure would not have persisted for 270 days would it?

Interesting defini9tion of default elsewhere:


Default –
Failure to make scheduled loan payment for 270 consecutive days or failure to honor the other terms of your loan agreement.


Glossary of Federal Student Loan Terms




Consequences of Default Applies to loans in active repayment status for which the borrower fails to make payments for 270 consecutive days. Borrowers in default lose eligibility for any future Federal financial aid and all deferment options; repayment of the entire loan balance becomes due immediately; collection costs of 25% or more may be added to the outstanding loan balance; and the U.S. government can withhold tax refunds and/or garnish wages in order to secure repayment of the loan.



Summary of Stafford Loan Terms
http://www.metrostate.edu/msweb/pathway/aid/your_aid_offer/stafford_loan_terms.html


So which is the real McCoy here? :unsure:

I located a sample promissory note, here is a snip from it:



http://mappingyourfuture.org/downloads/promnote.pdf

270 days seems to be a definite and literal period of time stated.

However it does say ".. make installment payments when due ...".

Hmmm?

Again if I wait 250 days and then make a full installment payment then my failure would not have persisted for 270 days would it?

Interesting defini9tion of default elsewhere:



Glossary of Federal Student Loan Terms






Summary of Stafford Loan Terms
http://www.metrostate.edu/msweb/pathway/aid/your_aid_offer/stafford_loan_terms.html


So which is the real McCoy here? :unsure:

I reread your post several times, but I don't see a difference in the two quotes. It seems that you would not be in default in your scenario with either quote. What am I missing?

I reread your post several times, but I don't see a difference in the two quotes. It seems that you would not be in default in your scenario with either quote. What am I missing?

It's just unclear to me what exactly constitutes a default.

Here are some cases I guess to be precise about this.

Minimum Payment demanded: $300 per month

1. I pay $300 (or whatever the minimum payment moves to) every 269 days for the rest of my life. Do I ever go into default and at what point?

2. I pay $20 every month for the rest of my life. Do I ever go in default and at what point?

3. I pay $20 every 269 days for the rest of my life. Do I ever go in default and if so at what point?

The answer to these depends on how the above quotes are interpreted. I am curious as to the real answer to these three questions from a legal perspective. For example would none of these three cases lead to default?

It's just unclear to me what exactly constitutes a default.

Here are some cases I guess to be precise about this.

Minimum Payment demanded: $300 per month

1. I pay $300 (or whatever the minimum payment moves to) every 269 days for the rest of my life. Do I ever go into default and at what point?

2. I pay $20 every month for the rest of my life. Do I ever go in default and at what point?

3. I pay $20 every 269 days for the rest of my life. Do I ever go in default and if so at what point?

The answer to these depends on how the above quotes are interpreted. I am curious as to the real answer to these three questions from a legal perspective. For example would none of these three cases lead to default?

I think that scenario 1 and 2 end up being the same in regards to student loan defaults because once you have a full payment applied, you set the clock back 30 days. In scenario 1 you are doing this all at once, and in scenario 2 you are on the payment "layaway plan". :cool:

In scenario 3 you never end up making a full payment at the 270 day cut off so you would go into default in my opinion.

This is me just guessing of course, but when my student loans were in default right after grad school (ten years ago), they went into default because I never made a full payment. I had made a couple of partial payments, but had never gotten a proper deferment and had never made a full payment. I ended up consolidating them and having the 25% "administrative fee" added on and that is why the balance is so high now. I ended up having to have the 25% administrative fee added on twice because they didn't consolidate all of the loans at once. This 25% fee plus the interest while I was in default effectively doubled my loan balance.

I think that scenario 1 and 2 end up being the same in regards to student loan defaults because once you have a full payment applied, you set the clock back 30 days. In scenario 1 you are doing this all at once, and in scenario 2 you are on the payment "layaway plan". :cool:

In scenario 3 you never end up making a full payment at the 270 day cut off so you would go into default in my opinion.

This is me just guessing of course, but when my student loans were in default right after grad school (ten years ago), they went into default because I never made a full payment. I had made a couple of partial payments, but had never gotten a proper deferment and had never made a full payment. I ended up consolidating them and having the 25% "administrative fee" added on and that is why the balance is so high now. I ended up having to have the 25% administrative fee added on twice because they didn't consolidate all of the loans at once. This 25% fee plus the interest while I was in default effectively doubled my loan balance.

Hmmm. How many days prior to the default was your last payment (of any amount?) Was it over 270?

Case #2 would still be about $20 * 10 months = $200 which is under $300 so still not a full payment. That's a tricky one. :)

I did notice once I got to 271 days and then made a small $20 payment the "days delinquent" didn't reset. But I don't know if that really means much at all. Ultimately I filed for a retroactive forbearance and deferment which took it out of default right before they filed a default claim. I was scared that they would hurry up and make a default claim so I made the small payment (All I could afford) thinking it might give me some options to fight it if they did go through with a default claim (It seemed to me they were trying to delay my forbearance and deferment request which I filed on day 265 or so).

Yes, so many nasty things happen once the loan goes in default. :( Although with money again it is possible to take it out and rehabilitate it after making so many timely payments again. If one can jsut make a full payment every 269 days I imagine that could help a lot of people avoid default....if it's true.

Hmmm. How many days prior to the default was your last payment (of any amount?) Was it over 270?

Case #2 would still be about $20 * 10 months = $200 which is under $300 so still not a full payment. That's a tricky one. :)

I did notice once I got to 271 days and then made a small $20 payment the "days delinquent" didn't reset. But I don't know if that really means much at all. Ultimately I filed for a retroactive forbearance and deferment which took it out of default right before the filed a default claim. I was scared that they would hurry up and make a default claim so I made the small payment (All I could afford) thinking it might give me some options to fight it if they did go through with a default claim (It seemed to me they were trying to delay my forbearance and deferment request which I filed on day 265 or so).

You got me on case #2, I knew I should have done the math. Usually I am good at trick questions... :D

My small payments never added up to a full payment, so I ended up in default. As much as forbearance is a mixed bag because interest accrues, it is WAY better than default, and those 25% admin fees. Now that I have student loan debt that I will never realistically pay off in my lifetime, it all seems academic like the national deficit or something. :cool:

I am getting a second graduate degree (mostly on a fellowship with a small loan to pay for my medical insurance) and this time I am going to go into public service, where my loans will be forgiven in 10 years on the income contingent plan. If the forgiveness for public service careers goes away, then I will be back to working diligently on my 32 associates degrees. :cool:

It's an installment loan. Payments are credited as I described above. When I had student loans and was 90 days past due, I would make a full payment and my account would then show as 60 days past due. I think you are trying to read too much into it. When you are 270 days past due your loan will go into default. The only way to delay that is to make a full month's payment. Like I said though, it will only delay it for another month unless you continue to make full monthly payments after that. If you are 269 days past due and you make a full payment, you will then be 239 days past due. If you make only a partial payment, you will still be 269 days past due.

In fact, they first apply anything you pay to outstanding late fees, so making a small payment may not even be applied to your past due payment if it's less than your outstanding late charges.