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Definition of Default

Default is a legal term which describes a borrower’s failure to repay a loan according to the terms agreed to when he/she signed a promissory note (legal binding promise to repay the  loan).  For the Direct Loan Program, default occurs when a borrower fails to make a payment for 270 days under the normal monthly repayment plan.


Tips to Avoid Default

  • Exhaust all other financial resources to help pay your colleges expenses – i.e., ACM scholarships, other outside scholarships,  tutoring/work-study positions or other grants.
  • Only borrow what you absolutely need!  Remember, loans are monies that you have to repay.
  • If you need to borrow loan monies, try and make small payments on your principal balance while you are still in school.  This will lower the amount you need to repay when you graduate.
  • Be sure and stay in contact with your servicer – if you move, get married or experience financial difficulties making your payments, contact your servicer immediately to discuss options.


Consequences of Default

The consequences of default are severe: The lender or servicer of your loan and the federal government will normally all take legal action to recover monies you owe including:

  • Notifying national credit bureaus of your default. This may affect your credit rating for as long as seven years. For example, you might find it difficult to borrow money from a bank to buy a car or obtain a mortgage;
  • The Internal Revenue Service can withhold your U.S. Individual Tax Refund and apply it to the amount you owe;
  • The agency holding your loan might ask your employer to deduct payments  from your paycheck;
  • You generally will be liable for loan collection costs – these costs can be huge;
  • If you return to school, you generally will not be eligible for additional federal aid.


Other Helpful Resources

College Expense Worksheet – This worksheet will help you calculate your total costs here at ACM and anticipate how much you will need to borrow.
CashCourse – an online financial education tool to help students effectively manage their money – U.S. government’s website that teaches the basics of financial education
40 Money Management Tips – a helpful planning guide for all college students
Student Loan Tips for Recent Graduates – 10 helpful tips to better understand your loans and how to manage them
National Student Loan Data System – Provides a complete history of all your loans and what you owe
PNC Bank Financial Literacy Information – Students can view and complete financial literacy modules and receive certificates of completion for each module.  Modules are free and students do not have to have PNC accounts or loans.