Student Loan Counseling & Education Debt Flashcards

A federal student loan enters official default status after how many consecutive days of non-payment?

Answer: 270 days

Federal student loans are considered in default after 270 days (approximately 9 months) of missed payments, at which point serious consequences such as wage garnishment can begin.

What is the primary credit-related benefit of successfully completing federal student loan rehabilitation?

Answer: The default notation is removed from the borrower's credit report

Upon successful rehabilitation, the default is removed from all three major credit bureaus' reports, though late payment history prior to the default remains.

How many consecutive voluntary, reasonable, and affordable monthly payments must a borrower make to rehabilitate a defaulted federal student loan?

Answer: 9 payments

Federal student loan rehabilitation requires 9 consecutive on-time monthly payments within 10 consecutive months to restore the loan to good standing.

How does Direct Loan Consolidation differ from loan rehabilitation as a remedy for defaulted federal student loans?

Answer: Consolidation combines loans into a new loan resolving default; rehabilitation restores the original defaulted loan to good standing

Consolidation pays off the defaulted loan by creating a new Direct Consolidation Loan, resolving default; rehabilitation restores the original loan's good standing and uniquely removes the default notation from credit reports.

Under income-driven repayment plans, what is the minimum monthly payment a borrower may be assigned if their income is below a certain threshold?

Answer: $0 per month

Income-driven repayment plans can result in a $0 monthly payment for borrowers whose income falls below 150% (or 225% under SAVE) of the federal poverty guideline, and these $0 payments still count toward forgiveness.

What is the critical distinction between deferment and forbearance for federal student loans regarding interest accrual on subsidized loans?

Answer: During an approved deferment on subsidized loans, the government pays accruing interest; during forbearance, interest accrues on all loan types at the borrower's expense

During eligible deferment periods, the U.S. Department of Education pays interest on Direct Subsidized Loans; during forbearance, all interest accrues and capitalizes at the borrower's expense.

When counseling a client who has both federal and private student loans and is experiencing financial hardship, what should the credit counselor advise as the appropriate prioritization strategy?

Answer: Exhaust federal loan protections first (IDR plans, deferment, forgiveness programs) before exploring private loan options, since federal loans offer significantly more repayment flexibility

Federal student loans offer income-driven repayment, forgiveness programs, deferment, and rehabilitation options not available for private loans, making it essential to explore federal protections before addressing private loan strategies.