Although it happens often, defaulting on student loans may have serious effects on a borrower’s finances and way of life in the future. Nevertheless, the current COVID-19 emergency remedy, which has been in effect since March 2020, continues to shield borrowers with federal student loans from certain possible consequences of default, such as income garnishment and delayed tax returns. However, since this emergency deferral is now set to expire on August 31, 2022, you should make an effort to comprehend the repercussions of defaulting and what you can do to prevent it before it’s too late.
If you’re concerned about going into default on your student loans (federal or private), you should educate yourself about the possible repercussions and the actions you can take to avoid going into default. Continue reading to find out what happens if you’re substantially behind on your student loan payments, whether you have federal or private loans.
What Takes Place If You Fall Into Federal Student Loan Default?
A number of repercussions may apply if you allow your federal student loans to fall into default by skipping regular payments for at least 270 days.
These repercussions, which are explicitly described on the webpage for federal student aid, may include the following:
- Acceleration: When your federal student loans are in default, a procedure known as acceleration causes the whole outstanding amount of your loan together with any interest you owe to become instantly payable.
- Loss of federal benefits: If you are in default on your federal student loans, you will no longer be eligible for deferral and forbearance.
- Loss of flexibility: If you are in default on your federal student loans, you will lose the option to choose your own payment schedule or change student loan repayment programs. Access to income-based repayment programs is also lost.
- Loss of federal student assistance: If your loans fail, you will no longer be eligible for federal student help.
- Damage to your credit score: Even though you are not yet in default, federal student loan late payments may be reported to the three main credit agencies 90 days after you are in default. If your credit score is damaged, it may be challenging to get a credit card, vehicle loan, or mortgage to buy a house.
- Treasury offset: In order to pay down past-due student loan debt, your tax returns and government benefit payments may be garnished or withheld.
- Wage garnishment: The federal government may deduct money from your paycheck to assist pay your student loan obligations.
- Legal issues and costs: If your loan servicer sues you in court, you may have to pay court costs and other related costs.
- Other issues: Your former school could withhold your transcript, which might make it difficult to enroll at another university. In rare circumstances, it’s also conceivable that you can be prohibited from buying or selling property and other assets.
If you’re having difficulties making payments or want to learn how to get your student loans out of default, you should get in touch with your student loan servicer, advises Federal Student Aid. You may be able to use one of the many accessible repayment alternatives available to you to keep up with your loan payments even during difficult financial circumstances.
Federal student loan borrowers who are in default on their loans may also employ debt consolidation or rehabilitation to get their loans out of default and back on track.
What Takes Place When People Fall Into Student Loan Default?
If you allow federal student loans to default, you run the risk of losing access to government protections like deferral and forbearance, having your wages garnished, being sued by your loan servicer, having your credit score damaged in a way that would take years to recover, and other things.
How Long Does It Take for a Federal Student Loan to Become Default?
After missing 270 consecutive monthly payments, federal student loans are deemed to be in default.
How Can Federal Student Loan Defaults Be Fixed?
There are a few different ways to assist get federal student loans out of default, according to the U.S. Department of Education, including debt rehabilitation, loan consolidation, and full payments.
Conclusion
It may take years to undo the harm that defaulting on a student loan has done to your credit score and your financial situation. Even if you haven’t yet missed a student loan payment, taking action now is your best option if you’re concerned about skipping payments or are going through any type of financial trouble.
You may find out what solutions are available to assist you avoid default in the near term by getting in touch with your loan provider and discussing your worries with them. You may be able to get back on track and avoid the worst effects of having student loan payments lapse with some careful preparation and enough time on your side.
