Myth or fact: Any payment prevents default

[debtprison]

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?

[justbroke]

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).

[HHM]

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.

[debtprison]

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.

[debtprison]

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.

[debtprison]

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:

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.

[justbroke]

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?

[debtprison]

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.

[backtoschool]

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.

[debtprison]

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...

[backtoschool]

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.

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

[MSbklawyer]

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

That's called "thinking like a lawyer".

[backtoschool]

That's called "thinking like a lawyer".

I am going to take that as a compliment!

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.

[hereforinfo]

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.

[MSbklawyer]

I am going to take that as a compliment!

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.