Consequences of Student Loan Default

Student loan default happens when borrowers have violated the terms of their student loan contract, usually by the act of escaping from debts. If the students do not repay your educational loans for 270 days and do not arrange a deferment or forbearance with their lender, the loans will be in default.

Are you thinking about defaulting on your federal education loans? Remember, you are still responsible for repaying your loans even if you do not graduate or find it difficult to get a job after graduation. So, understand what unfavorable risks that you may face if you do not want to make any payment at all.

Before the Declaration of Student Loan Default

Before the declaration of student loan default there is the delinquency period. During this period, student loan lenders will exhaust all efforts to find and contact you. If unsuccessful, the loan will then be placed in default and be turned over to either the state guaranty agency in your state or the Department of Education.

Once the loan enters the default status, your lender may accelerate the maturity date, making the overall payment in full due right away.

What Happens if You Default on Your Student Loans

When your federal student loan enters the default status, several consequences are connected to it. Here are some of them:

• The loans may be turned over to a collection agency and you will be liable for all the costs associated with collecting the loan.
• You can be sued for the entire amount of the loan.
• Your wages may be garnished and if you are a federal employee you face the possibility of having 15% of your disposable pay offset.
• The federal and state income tax refunds may be intercepted to repay your defaulted student loans.
• That federal government may withhold part of the Social Security benefit payments.
• The defaulted loans will be reported to credit bureaus -- remains on your credit report for seven years -- and you will have a bad credit rating.
• Until you repay the loan in full your chance to receive federal financial aid will now be impossible to happen.
• Federal interest benefits will be denied.

Additional Consequences of Student Loan Default

Aside from the above consequences there is also some other less-obvious consequences. You are no longer entitled to any deferments or forbearances. Subsequently, there are some instances when the educational loan default may force you to take a semester off.

What's more, it is possible that you lose your professional licenses. For example, lawyers who possess defaulted student 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, you will become liable for all fees associated with collecting the federally financed loan. This means that you will end up repaying your outstanding student debt, plus up to 25 percent in contingent fees in order to satisfy the student loan debt.