Can I Get Tuition Assistance If I Defaulted on a Student Loan?
With college education costs on the rise, many parents and students borrow all or part of the money needed to pay for tuition, books and other educational expenses through federal student aid. This may include grants, which you don't have to repay, and student loan programs, for which the student or parent is responsible for repaying once the student hasn't attended college for six or more months. If you don't repay a student loan, it becomes in danger of going into default.
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What Is a Defaulted Student Loan?
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A defaulted student loan is a loan on which the borrower has made no payment for 270 days, and for which the borrower has made no arrangement to defer. At that point, the loan becomes ineligible for repayment in installments. The lender can request at any time after that for the borrower to pay the total loan amount in full. The lender may then hire a collection agency to collect on the debt, and may add up to 25 percent of the total loan amount in collection fees, for which the borrower is fully responsible.
Because it is a failure to pay a debt, defaulting on a student loan can have serious adverse consequences and will show up as negative items on your credit report. While privately obtained student loans are subject to the same statutes of limitation as ordinary private loans, student loans borrowed from a government program have no statute of limitations. The US Department of Education may sue you indefinitely and repeatedly.
Financial Aid With Defaulted Loans
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Individuals with student loans in default status are ineligible for federal financial aid. This means that you can't receive any government grants, such as Pell Grants, or apply for any federal student loan programs, such as Stafford loans. If you completely a Free Application for Student Aid (FAFSA) form while you have a defaulted student loan, the Department of Education will send you a letter informing you that your default status disqualifies you from going forward with the financial aid application.
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Scholarships With Defaulted Loans
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Not all tuition assistance comes from the government, of course. Many people subsidize the cost of a college education with scholarships from the schools they attend. Unfortunately, if you have a prior student loan in default, you won't be able to apply for the vast majority of scholarships from private institutions. Almost all of them require that you fill out the FAFSA and be eligible for federal aid.
Tuition Assistance Options and Defaulted Loans
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If you have defaulted on a student loan and wish to go back to school, you have several options available to get assistance paying for the cost of your education by getting your loan out of default status. You can arrange a payment plan with the Department of Education, and after six months of timely, continuous payments, you'll once again become eligible for federal financial aid. If you have more than one loan, you can consolidate them through the government's Direct Loans program and arrange a new payment plan based on your income levels. Finally, you can enter a loan rehabilitation program, in which the Department of Education restores your loan to its original terms after making nine continuous payments.
If you don't want to wait to get your loan out of default to qualify for federal aid, you have two other options. You can take out a private loan from a bank or other private lending institution to cover the costs of your college education instead of relying on a loan from a federal program. You can also repay your defaulted loan in full with a one-time lump sum payment.
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