What does loan acceleration mean?

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    Loan acceleration is an agreement in your student loan contract that states your lender can demand immediate repayment of the entire outstanding balance of the loan if you breach the borrowing terms  – like if you default on your student loan. 

    If this happens, the lender can begin collecting on it by taking money from your wages (known as wage garnishment) or federal payments like tax refunds. The lender can ask your employer to withhold up to 15% of your wages to go toward the defaulted loan without taking you to court. The United States Department of Education could also request the Treasury Department to withhold money from your state or federal income tax refunds, Social Security payments, disability benefits, and other federal payments to go toward your defaulted loan.

    There are three federal student loans under the Department of Education:

    • William D. Ford Federal Direct Loan (Direct Loan) Program
    • The Federal Family Education Loan (FFEL) Program
    • The Federal Perkins Loan Program

    Collections on the defaulted federal loans are taken care of by the Default Resolution group at the Federal Student Aid office. 

    Even though student loan repayment started in October 2023, loans won’t go into default for a year due to the student loan on-ramp period. 

    The student loan on-ramp is a temporary 12-month period that began on Oct. 1, 2023, and will end on Sept. 30, 2024. This period is designed to help federal student loan borrowers gradually transition back into making payments after the long pandemic-related payment pause. In that time, borrowers who can should continue to make payments; but missed or late payments will not hurt your credit score as they will not be reported to the credit bureaus. 

    A new one-time initiative called “Fresh Start” lets borrowers who defaulted on their loans before the pandemic restart making payments in good standing. The Fresh Start program will continue for one year starting October 2023. There are some automatic benefits to the Fresh Start program, like regaining access to federal student aid including loans and grants. However, you need to sign up for the program on the federal website to access all the benefits. To find out more about the program and submit a request, log in to myeddebt.ed.gov

    The benefits of enrolling in the Fresh Start program include:

    • Transferring your defaulted loans from the Default Resolution Group or guaranty agency to a loan servicer.
    • Changing your defaulted loan status to “in repayment.”
    • Removal of the default record from your credit report. 
    • Access to income-driven repayment plans, student loan forgiveness programs, and forbearance and forgiveness programs. 

    To confirm whether or not you qualify for the Fresh Start program, call the Default Resolution Group at (800) 621-3115.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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