If you are a federal student loan borrower, you know that the burden of student loan debt can sometimes be overwhelming. After all, while there are forbearance, deferment, and payment plan options, these can only do so much for you in lowering or stopping your payments. Even bankruptcy, in most cases, cannot rid you of your federal student loan debt. As such, you may be wondering what will happen if you run out of options and end up defaulting on your student loan or loans. Get to know some of the things that can and will happen if your student loans go into default. Then, you can plan accordingly if you are in that process currently.
Your Credit Score Will Be Greatly Affected
One of the first things that will happen when you get past due on and ultimately default on your student loans is that your credit score will suffer as a result. Many student loan companies start reporting past due accounts between 30 and 90 days after the payment goes past due. However, they do have the legal right to report your account past due even the day after it was due, so do not count on this grace period always being there.
Once you get reported past due, your credit score will begin getting lower. However, once you default, the damage will become much greater. When your student loan goes into default, it is essentially the same as any other debt going into collections. Collections accounts are bad news. Your credit score will tank. So, if you know you are going to go into default, know that getting new loans, credit cards, or even a rental apartment will be much more difficult.
You May Lose Your Professional License
Among the most devastating possible outcomes of a defaulted student loan is the loss of a professional license. If you are a doctor, teacher, or lawyer, for example, a defaulted student loan could cause your license for that profession to be revoked or your renewal application to be denied.
This is not true of every state in the country, though. Only some states are able to do this, including Washington, Texas, Massachusetts, and more. If you live in one of those states, your professional license will be at risk.
Your Wages Will Likely Be Garnished
There are, of course, financial consequences to defaulting on your student loans. The federal government can, and in most cases will, garnish your wages to get back the money you owe them in student loans. This can be a difficult pill to swallow for student loan borrowers that defaulted because they cannot afford payments.
However, there are garnishment laws that protect some of your wages. According to federal garnishment law, up to 25 percent of disposable earnings may be garnished. There is a second provision that states garnishments can be in the amount that their pay exceeds 30 times the federal minimum wage. For most people who default on their student loans, the 25 percent or less garnishment is the norm. A lawyer like Stuart J Sinsheimer Attorney at Law can help you understand how garnishment will work.
Now that you know more about what will happen if and when you default on your student loan, you can be better prepared for the challenges you will be facing as a result.
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