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Default Prevention

Rights and Responsibilities

What are my Rights?

  • Loan holder must provide a repayment schedule, interest rates, fees, the balance you owe, and your repayment options.
  • Notification when loan is paid in full.
  • Assure lender/servicer is accurately reporting information to credit bureaus.

What are my Responsibilities?

  • You must repay your loans on time even if you don’t finish your education, or unsatisfied with education received.
  • Notify loan holder or servicer immediately with any change to your name, address, telephone number, employer, or Social Security number.
  • Follow up on any type of deferments/forbearance forms submitted.
  • Keep in touch with your lender/servicer, especially when you move and/or change your address.

A few things to know:

  • The “principal” is the amount of your loan.
  • Interest will be charged monthly on the money you borrowed.
  • Disclosure statement(s) are sent indicating the amount and disbursement date of your student loan.

Delinquency

Are you delinquent? (On your student loan, that is.)

  • 15 days grace period
  • Not making your monthly payment on time.
  • Could be reported to national credit agencies.
  • Late fees
  • Missing more payments can easily place you in “DEFAULT”.

Default

What is Default?

When you fail to make loan payments (for nine months or 270 days) according to the terms and conditions of your promissory note, the lender/servicer will place your loan in default and will be assigned to your guaranty agency for further collections.

What are the affects of Default?

Loan default can have serious repercussions affecting you long-term or permanently. The following are consequences of defaulting:

  • Ineligibility for future federal financial aid.
  • No access to official transcript and academic records.
  • Your wages and tax refunds garnished.
  • Interest capitalization: interest will be added to principal of loan.
  • Legal action taken against you for the balance of your loan as well as leaving you responsible for the legal fees.
  • A negative impact on your credit report with national credit agencies up to seven years.
  • Trouble assuring best financing of future auto loans, mortgages etc.
  • A renewal of any professional or occupational license may be denied.

Who is involved and what do they do?

The Borrower:
You! You are responsible for repaying your student loan and asking questions.

The School: (Financial Aid Office)
The School will determine your eligibility and certify your student loan. They can also provide assistance with the loans borrowed, name of lender, servicer, repayment process, deferment, and forbearance forms.

The Lender:
COSTEP is a participant in the Federal Family Education Loan (FFEL) Program and funds your student loan. COSTEP provides information regarding disbursement of funds, they set up the repayment terms, and collect on the loan.

The Servicer/Holder:
COSTEP is a servicer that will originate your loan and perform administrative functions associated with the processing of your loan.

The Guarantor:
Verifies eligibility for funding and insures your loan to the lender. They also act as a liaison between the school, you, your parents and the lender to ensure compliance with federal regulations.

U.S. Department Of Education (DOE):
DOE is a Federal Government Agency who is responsible for setting policies and administering FFEL Program.

Repayment Options

Standard repayment:
Over a maximum repayment term of 10 years you pay equal monthly payments. Payment may change if interest rate changes annually.

Income sensitive repayment:
Payments set monthly depending on your gross income and adjusted every year based on income increase or decrease. If loan is not repaid in the term of 10 years you may extend it up to five years.

Graduated repayment:
Payments are minimal to where to where only interest is covered the first couple of years in repayment but will increase over time as your income increases.

Extended repayment:
Your repayment will extend to 25 years and can be fixed or graduated if you have a large amount in student loans.

Forbear payment:
Certain borrower’s are eligible to forbear payments from 6-12 months at the lenders discretion.

What happens when you postpone payment:

Deferment:

  • Lender suspends student loan payments for a period of time.
  • Federal Government will pay interest on Subsidized Stafford Loans only.
  • You are responsible for all accrued interest on Unsubsidized Stafford loans.
  • Must continue scheduled loan payments until approved.

Forbearance:

  • Lender suspends or reduces student loan payments for a period of time.
  • Granted for borrowers “not eligible” for Deferment.
  • You are responsible for all accrued interest during forbearance.
  • You may pay accrued interest or add to your principal balance.
  • Must continue scheduled loan payments until approved.
  • Forbearance time is at lenders discretion.

Your Legal Rights For Repayment

  • Repayment period of at least five years as long as you meet minimum monthly payments.
  • No penalty for repaying all or part of you loan at any time.
  • You have the right to different repayment options if eligible.
  • Notification in writing if your loan is sold or transferred to another Servicer/Holder.
  • Your loan is forgiven if you become deceased or become permanently disabled.
  • You can defer payments as long as you meet specific criteria.
  • You are entitled to ask your Lender/Holder, Servicer, School, or Guarantor questions about your student loan.

Don’t know where your loans are?

The National Student Loan Data System (NSLDS) is the U.S. Department of Education’s central database for student aid. NSLDS Student Access provides a centralized, integrated view of Title IV loans so recipients of Title IV Aid can access and inquire about their Title IV loans and/or grant data. The following contact info will get you started in finding your student loans:

1-800-4FEDAID (1-800-433-3243)
www.nslds.ed.gov

You will need your Personal Identification Number (PIN) in order to access information online. If you do not have your PIN you can retrieve or request a PIN at: www.pin.ed.gov

Have you Defaulted? What do you do now?

Once you default on a federal student loan you can not receive federal student aid until you have made payments of an approved amount for at least six consecutive months.

Option 1: Pay the loan in full:

  • This will remove you from default status.
  • You will save by not having to pay additional interest and collection cost.
  • Credit report will show “Paid in Full”

Option 2: Standard repayment:

  • 10 year repayment term
  • $50.00 minimal payment based on loan amount.

Option 3: Extended repayment:

  • Lengthens repayment term up to 25 years
  • Must have a minimum loan balance of $30,000 to qualify
  • Payments can be either fixed or graduated
  • Total interest costs will be higher over the life of the loan than with the standard repayment plan, although payment amount may be lower

Need Help?

If you have student loans with COSTEP or lender partners and feel you may fall into or currently in default and don’t know what to do, please contact COSTEP Customer Service Department at 1(800) 949-6371 or e-mail us at customerservice@costep.org for assistance.

The three national credit agencies:

Equifax
PO Box 740241
Atlanta, GA 30374-0241
(800) 685-1111
www.equifax.com 		Experian
PO Box 949
Allen, TX 75013
(800) 682-7654
www.experian.com 		Trans Union
PO Box 390
Springfield, PA 19064-0290
(800) 916-8800
www.transunion.com