Stafford loans are essentially a contract between you as a student and the federal government. When you apply via the FAFSA for a Stafford loan, you agree to repay any money lent as either a subsidized or unsubsidized Stafford loan. This is why students who apply for a Stafford loan must sign a MPN or Master Promissory Note.
This legally binding document can be used to force you to repay your loan and allows delinquent federal loans to take precedent over all other loan types. For this reason, taking out a Stafford loan is a serious commitment, and if you think that you might not be able to pay it back, you should consider the consequences of defaulting on a Stafford loan.
If your financial situation is such that you are now or will soon be in arrears on your federal Stafford loan, you should contact financial aid officials at your school in order to discuss possible arrangements such as a forbearance, refinancing, or rehabilitation of the loan or loans. This is important, because if you default on a Stafford loan, it will have a significant adverse effect on your credit that may persist for as long as ten years.
Stafford loans that enter default are often remedied by the federal government taking the student to court or through arbitration to garnish wages, freeze bank accounts, establish liens against property and belongings, and seize tax refunds or credits.
Stafford loans that are in default will continue to accrue interest and fees, resulting in the possibility of a greatly increased balance that the federal government will aggressively and enthusiastically seek to collect.
Stafford loans can be in arrears or even in default for years, and the debt will still be owed. The federal government will not offer settlements on Stafford loans and even bankruptcy cannot discharge federal student loan debts.
Essentially, once you sign a Master Promissory Note for a Stafford loan, and funds are disbursed to you, you will be forever responsible to repay that money. There is no bankruptcy protection from federal loans, and there are no forgiveness or settlement programs. For this reason, you should always repay your Stafford loans exactly as agreed, and if you can’t, call the loan administrator for assistance.
Are you having trouble making your student loan payments? Consider a PLUS loan rehabilitation.
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