When a borrower defaults on a student loan, does the guarantor collect payments on just the principal, or is the borrower still obligated to pay the interest?
The borrower is still obligated to pay the interest, and a defaulted student loan continues to accrue daily interest. Also, a 25 percent collection charge on the principal and interest is added to the balance owed by the borrower. Defaulting on student loans has very serious consequences. Defaulted loans may be subject to collection by IRS tax refund offset, wage garnishment, a collection agency, or legal proceedings. Additionally, you may be ineligible for deferments and additional student aid, hindering your ability to find a job and damaging your credit record.
Related Questions
- Can a lender collect from the borrower an appraisal fee of $200, listing the fee as such on the HUD-1, yet pay an independent appraiser $175 and collect the $25 difference?
- When a borrower defaults on a student loan, does the guarantor collect payments on just the principal, or is the borrower still obligated to pay the interest?
- Can I make extra principal payments so I can pay off the loan more quickly? Is there a prepayment fee?
