If you default on your student loans, meaning that you are more than 270 days delinquent on your loan repayments, there are serious consequences!
Here are 10 things that could happen if you default on your student loans:
- You Could Get Sued. Private lenders and the government could sue you to collect defaulted student loans. And unlike other debts, there is no time limit on suing to collect back student loans, so you could possibly be sued indefinitely.
- Your Federal Benefits Could Be Taken. The government can take some of your federal benefit payments (like Social Security retirement benefits & Social Security disability benefits) to use as reimbursement for student loans.
- Your Credit Rating Will Be Ruined. Your credit rating will be wrecked for at least seven years, so trying to borrow money for a car, home, or expensive items is out of the question.
- Tax Refund Offsets. Until your student loans are paid in full, the IRS can intercept any income tax refund that you may be entitled to. This is one way the Department of Education annually collects hundreds of millions of dollars, and is a popular method to collect payment on defaulted loans.
- Your Paycheck May Dwindle. The government can take a limited portion of your wages, if you don’t pay student loans back (up to 15% of your disposable income).
- You’ll Be Harassed by Collection Agencies. Collection agencies will call your home, work, your family members, and anyone else they can track back to you. Until you start to pay, they will continue to harass and call.
- Forget Renting Apartments. When you submit an application to rent an apartment, usually realtors, apartment owners, or rental agencies run a credit check on you to ensure you will make payments and pay rent on time. You may run into trouble finding a place to live if you haven’t been paying your student loans.
- No More Federal Financial Aid. It will be nearly impossible to receive more federal financial aid until you repay your student loan in full.
- Associated Collection Fees. Loan agencies may charge you collection fees on your unpaid student loans. Also, collection agencies charge the Department of Education a commission, which you end up paying. So in the end you actually have to pay back your student loan with interest, the collection fees, and the commission.
- Dropping Out of School Won’t Help. Even if you drop out or switch schools, you will still need to repay the student loans you took out.
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