What Happens When You Default on a Student Loan

Here’s what could happen if you default on your student loans.

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The Consequences of Default

Defaulting on a student loan has serious consequences. Not only will it damage your credit, but it can also lead to wage garnishment, which means your employer will withhold a portion of your paycheck to go towards your debt. Defaulting on a student loan can also make it harder to get approved for a car loan or a mortgage.

Your credit score will suffer

If you default on your student loans, your credit score will suffer. This will make it difficult to get approved for future loans, including auto loans and mortgages. Additionally, your interest rates will increase, making it more expensive to borrow money in the future.

Your ability to default on a student loan also affects your job prospects. Many employers check credit scores as part of the hiring process, and a low score can disqualify you from certain positions. In some cases, you may still be able to get the job but may start at a lower salary than someone with a good credit score.

Defaulting on your student loans also has legal consequences. The government can withhold your tax refunds and take other measures to collect the money you owe. You may also be sued by your lender or the government. If you are sued, you could end up having to pay court costs and attorney fees in addition to the amount you owe on your loan.

You will owe more money

If you default on your student loan, you will owe more money. The entire unpaid balance of your loan and any interest will become immediately due and your loan will be turned over to a collection agency. You may also be sued. If you are sued, you will have to pay court costs and attorney’s fees, in addition to the amount you owe on your loan.

Your credit score will be damaged. Defaulting on a student loan can lower your credit score by as many as 100 points, making it difficult to get a car loan, a mortgage, or even a credit card.

Your wage may be garnished. The government can garnish your wages if you default on your federal student loans. That means the government can take money out of your paycheck before you ever see it. Up to 15% of your disposable income can be taken from your paycheck.

You may not be able to get another federal student loan. If you default on a federal student loan, you will not be able to get another federal student loan until you repay the amount you owe or make satisfactory arrangements with the lender .

You could lose your professional license. If you default on a federal student loan, your professional license could be revoked . This is true for nurses, doctors, lawyers, and other professionals who are required to have a professional license in order to work in their field

You could be sued

If you default on your student loans, you could be sued by your lender. If you’re sued and a judgment is entered against you, the court may order wage garnishment or bank account seizure to repay your debt. You could also have your federal and state taxes intercepted, which means the government would take a portion of your tax refund to repay your debt.

How to Avoid Default

Defaulting on your student loans can have a number of negative consequences. First, your credit score will take a hit, which can make it difficult to get a loan in the future. Additionally, your student loan debt will increase because of late fees and additional interest. The government can also garnish your wages or tax refunds if you default on your student loans. In short, defaulting is not a good idea. Let’s take a look at how to avoid it.

Understand your repayment options

The first thing you need to do if you’re struggling to make your student loan payments is to understand your repayment options. There are several different repayment plans available, and your loan servicer will work with you to select the one that’s best for your situation. You can choose from standard, extended, graduated, income-contingent, income-based, and PAYE repayment plans. Each plan has its own eligibility requirements and terms.

Standard Repayment Plan
If you can afford it, the Standard Repayment Plan is usually the best option because it offers the lowest overall cost. Under this plan, your monthly payments are fixed, and you’ll pay off your loans in 10 years or less.

Extended Repayment Plan
The Extended Repayment Plan is available to borrowers with more than $30,000 in Direct Loans. Under this plan, your monthly payments are fixed, but you have up to 25 years to repay your loans.

Graduated Repayment Plan
The Graduated Repayment Plan is a good option if you expect your income to increase steadily over time. Under this plan, your monthly payments start out low and increase every two years. You’ll have up to 10 years to repay your loans.

Income-Contingent Repayment Plan (ICR)
The Income-Contingent Repayment Plan is available to all federal student loan borrowers, regardless of how much they borrowed. Under this plan, your monthly payment is based on your income and family size. You’ll have up to 25 years to repay your loans.

Income-Based Repayment Plan (IBR) The Income-Based Repayment Plan is available to borrowers with a partial financial hardship. Under this plan, your monthly payment is based on your income and family size. You’ll have up to 25 years to repay your loans, and any remaining balance will be forgiven after 25 years.
Pay As You Earn (PAYE) The Pay As You Earn plan is similar to the IBR plan but has even more generous terms for borrowers with a partial financial hardship. Under this plan, your monthly payment is 10% of discretionary income (defined as adjusted gross income minus 150% of the poverty guideline for your family size), and any remaining balance will be forgiven after 20 years of qualifying payments .

Keep track of your loan balance

It’s critical that you know how much you owe and to whom you owe it. That way, you can develop a budget and set aside money each month to make your student loan payments. You also need to be aware of any changes to your loan balance, like if your interest rate increases or extra fees are added.

You can find this information by logging in to your account on your lender’s website. If you have trouble logging in or don’t know where to find your account, contact your lender directly.

Prioritize your loan payments

Your best bet to avoid default is to organize your student loans by interest rate and make payments on the loans with the highest interest rates first. By doing this, you minimize the amount of total interest you’ll accrue, and you’ll likely save money in the long run.

If you have trouble making ends meet and are having trouble making your student loan payments, don’t wait until you default to seek help. Defaulting on your student loans can have severe consequences, including damage to your credit score, wage garnishment, and seizure of your tax refunds.

There are a number of programs available to help borrowers struggling to make their student loan payments. If you’re having trouble making your payments, contact your loan servicer to discuss your options.

What to Do if You Can’t Avoid Default

No matter what your financial situation is, defaulting on a student loan should always be a last resort. If you’re struggling to make your payments, there are a number of things you can do to avoid default. Let’s take a look at some of the consequences of defaulting on a student loan, and what you can do to avoid it.

Negotiate with your lender

If you’re struggling to make your monthly student loan payments, the first thing you should do is contact your lender. Many lenders are willing to work with borrowers who are having difficulty, and they may be able to offer you a different repayment plan that better suits your needs.

If you can’t reach an agreement with your lender, you may be able to consolidate your loans or enter into forbearance, which would temporarily lower or suspend your monthly payments. However, these options will likely cause you to pay more in interest over the life of the loan, so be sure to weigh your options carefully before moving forward.

Defaulting on a student loan has serious consequences that can negatively impact your financial future. If possible, try to avoid default at all costs. However, if you find yourself in this situation, know that there are options available to help you get back on track.

Consolidate your loans

If you’re having trouble making payments on your student loans, one option you may want to consider is consolidation. Loan consolidation is when you combine multiple federal student loans into a single loan with a fixed interest rate. You may be able to get a lower monthly payment or save money on interest with loan consolidation.

There are two types of loan consolidation: direct consolidation loans and private consolidation loans. Direct consolidation loans are made by the federal government. Private consolidation loans are made by private lenders, such as banks or credit unions.

If you’re struggling to make payments on your student loans, consolidating your loans could help you save money or lower your monthly payment.

Refinance your loans

If you’re struggling to make payments on your student loans and you can’t seem to get ahead, refinancing your loans could be a good option for you. Refinancing essentially means taking out a new loan to pay off your existing loans. This new loan will have a new interest rate, which could be lower than your current rate. This could help you save money on interest and make your monthly payments more manageable.

There are a few things to consider before you refinance your loans, though. First, make sure you understand all the terms of the new loan. Check things like the interest rate, repayment term, and any fees or penalties associated with the loan. It’s also important to consider whether or not you’ll lose any benefits by refinancing, such as certain repayment plans or forgiveness programs.

If you’re not sure whether or not refinancing is right for you, there are plenty of resources available to help you make a decision. You can talk to a financial advisor, contact your student loan servicer, or even speak with someone at a bank or credit union. Whatever you do, just make sure you take the time to understand all your options before making a decision.