The Consequences Of Defaulting On Your Student Loan

When a student loan enters the default status, several consequences are connected to it. Some of them are mentioned below:

- The loans may be turned over to a collection agency.

- The borrower will be liable for all the costs associated with collecting the loan. This may even include the court costs as well as attorney fees.

- The borrower can be sued for the entire amount of the loan.

- The wages may be garnished.

- The federal and state income tax refunds may be intercepted.

- That federal government may withhold part of the Social Security benefit payments.

- On the credit record, the defaulted loans will be mentioned, making it difficult for the borrower to get an auto loan, mortgage and even credit cards. Note that having a bad credit record can harm your ability to find a job.

- The borrower’s chance to receive federal financial aid will now be impossible to happen until he repays the loan in full or make arrangements to repay what he already owe and make at least six consecutive, on time, monthly payments.

- Federal interest benefits will be denied.

Aside from the above mentioned consequences, there is also some other less-obvious consequences that are oftentimes omitted from consideration. One of those could be the rule that the federal student loan borrowers holding defaulted student loans are no longer entitled to any deferments or forbearances. Subsequently, there are some instances when the loan default may force the individual to consider or take a semester off. This must be taken due to his or her inability to qualify for federal student aid as well as to afford the cost of higher education independently.

What’s more, there is a great possibility for those borrowers who defaulted on their student loans to lose their professional licenses. For instance, the lawyers who possess defaulted loans may be subject to have their license to practice law disavowed. The doctors and certified public accountants would also fall into this category.

Lastly, the borrowers who just ignored summons for loan repayments will become liable for all fees associated with collecting the federally financed loan. This means that the borrowers will end up repaying their outstanding debt, plus up to 25 percent in contingent fees in order to satisfy the student loan debt. Note that this rule is actually consistent with the Higher Education Act as well as on the terms of most borrowers’ promissory notes.