Experts state that by early 2013, the amount of student loan debt in the United States surpassed $1 trillion and that nearly 20% of Americans households owe on student loans.It is also reported that student loan delinquency and default are also on the rise. By 2009, about 9% of borrowers had defaulted. Student graduating from for-profit schools have a much worse default rate.
There are many negative consequences for student loan borrowers who default. The federal government contracts with several private collection agencies to collect on defaulted loans. Collection charges may be as high as 20% or higher of the payment. Also in order to collect, the government can seize wages, tax refunds, and social security payments.
Deferment and Forbearance
Borrowers with federal loans who return to school or who are in a difficult financial circumstances may be able to obtain a temporary deferment or forbearance of payments. Information is available on the Department of Education's website.
Deferment means that the borrower is excused from making payments for a period of time. Borrowers who do qualify for deferment may seek forbearance from payment or a reduction in payments for up to 12 months. Unlike with deferment, interest continues to accrue on the loan.
