Student loans are one of the most common strategies to pay for college. As college gets more and more expensive, more and more people are turning to student loans. And with the economy in a bit of a recession, more and more people are struggling to make their payments. One consequence is to default on your loan.
What Does It Mean to Default?
Miss a payment or make a payment late and it’s a delinquency. Fail to make a payment on your student loans for nine months and it’s considered a default. It essentially means you’ve stopped making payments on your student loan. Because a loan is an agreement between you and a financial institution, you have an obligation to uphold your end of the bargain. Stop making payments and you’ve broken your agreement.
There are some unfortunate consequences. Generally, you will receive a notice from your state’s department of education notifying you of the default. You’ll also be responsible for any fees incurred while they’re collecting this debt from you.
What Happens Next?
* You will no longer receive a tax refund – Generally, this is the first step. The department of state will contact the IRS and you will no longer receive a tax refund. Any money you might get will go straight to paying off your debt. This will continue until your debt is paid off or you’ve negotiated a repayment plan.
* You may have your paycheck garnished – The second step will be for the financial institution to garnish your paycheck. And while many agencies have to go to court to get a garnishment, the department of education does not. They can take up to fifteen percent of your disposable income.
* You can have your social security benefits reduced.
* You can be sued.
* You can lose any professional licenses you may have obtained.
In short, there really is no way to not pay back your student loan. One way or another, they will get their money. Your best bet is to renegotiate a payment plan that fits your current needs. It’s much better than defaulting which can affect your credit score, your professional standing, and your reputation.
If you’re in danger of defaulting on a student loan, investigate your repayment options. You may be able to consolidate or negotiate a new repayment plan.