Get Schooled: Here’s What Happens When You Fail To Pay Your Student Loans
Don’t try this at home.
Although a group of students are going on a debt strike against Corinthian Colleges and boycotting their student loans, it’s not a good idea for everyone to do the same.
A little more than 11 percent of student loans were delinquent at the end of 2014, which is double the numbers compared to a decade ago. But as we all know, being late in repaying your student loans can have negative consequences.
Here are the five most important things that can happen, according to Yahoo’s Mandi Woodruff.
–Your credit score will drastically drop and a low credit score will make it much harder to get approved for new lines of credit. And in some cases, it could affect your job prospects.
–You could default if you skip making payments for more than 270 days, and default is nothing to take lightly. As a result, the bank could demand the payment in full and give the account over to a collections agency. A loan that is in default can do more damage to your credit score than a delinquent loan, and it can be very difficult to get approved for any new credit (auto loans, mortgages, etc). It can even impact a simple cell phone plan and make it tough to get a job with a default loan on your credit report.
–Forget your tax refund. If you allow your student loan to go into default, you can forget about getting your tax refund check–it will go instead to paying off your federal debt.
–Your wages could be garnished. The federal government can take up to 15 percent of your income if you default on your student loans. If you’re retired, they can even garnish your social security benefits. And yes, private lenders can garnish your wages, too, but they have to take you to court first. You can hire an attorney to fight it, but of course, that will cost you even more.
–If you had a co-signer for your loan and you’re in default, your co-signer will be in trouble as well. They can be at risk for credit damage, wage garnishment and even lawsuits. While it’s usually possible to remove your cosigner, if you’re already in default, it will be impossible.
But before things go left, know that there are steps you can take to get your student loan payments back on track. Prioritize your loans if you have several of them: “Loans that have the highest interest rate should go at the top of your payoff list,” says Woodruff. And also be sure to pay off private loans first because private lenders won’t be as flexible in offering such replacement plans as loan deferment and income-based repayment.
If you’re having trouble paying, contact the lender and explain your situation. They may offer a variety of repayment options such as income-based repayment, loan deferment or forbearance, and loan consolidation (all of which you can apply for free here).
To keep making payments on time, set up auto payments that will be taken out of your bank account on pay day. An added perk of signing up for autopay is that you may qualify for an interest rate discount (ranging from 0.25 percent to 0.50 percent) on your loans.