Why Avoid Default

If you don’t make your loan payments, your loan is considered to be in default when you fail to make a payment for 270 days if paid monthly, or when you fail to make a payment for 330 days for FFEL Program loans. Although giant Corporations can file for bankruptcy and get a fresh start over, it’s not an option for students overburdened and drowning in debt.

Your student loan default could make you unemployable or garnish your wages with your existing employer.

The consequences of default are very severe. To add insult to injury, most employers run credit checks on applicants before hiring, which could make it close to impossible for you to get a higher paying job to actually repay these debts back. Once a borrower has defaulted on a student loan, this can also result in automatically becoming ineligible for some government jobs. Existing Federal employees face the possibility of having 15% of their disposable pay offset by their employer toward repayment of their loan through Federal Salary Offset.

If you think that’s bad, how about your school not releasing your official graduation documents to a perspective employer! The Department of Education actually encourages schools to withhold transcripts of those that are behind on payments. With many different jobs requiring official transcripts, it will make it a lot harder to get a better paying job to pay off student debt when your school is holding them hostage.

You Can Lose Your Existing License

Even if you aren’t looking for a job, you can lose the job you currently have. If you default on your student loans, you can be stripped of your professional license and even your driver’s license suspended as punishment in Montana. 42 nurses in Tennessee had their nursing licenses suspended in 2011 alone for defaulting on their student loans.

Here’s what else can happen to you when you default on your student loans:

• The loan will be reported as delinquent to credit bureaus, damaging your credit rating for years. This will affect your ability to buy a car, a house or to get a credit card. You also may have trouble getting approval to rent an apartment, signing up for utilities, and getting a cellphone plan.
• You lose eligibility for deferment, forbearance, and repayment plans with federal loans.
• You lose eligibility for additional federal student aid. Your loan account is assigned to a collection agency and you will get many harassing phone calls on a daily basis.
• Your federal and state taxes may be withheld through a “tax offset”, meaning that the IRS can take your federal and state tax refund to collect any of your defaulted student loan debt.
• Your student loan debt will substantially increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process by as much as 25% or more.
• At the request of the federal government, your employer will have to take out money from your pay and send it to the government with a “wage garnishment”.
• The loan holder can take legal action against you, and you may not be able to purchase or sell real estate.
• It will take many years to reestablish your credit and recover from default.