6 Reasons Not to Default on Your Student Loan
Paying for college can be a challenge, which is why so many people take out student loans. In the U.S., more than 42 million student borrowers owe an average of $39,000 each. If you are also a borrower, you aren’t alone. But there is one student loan statistic that you don’t want to belong to—the one in 10 Americans who go into default.
You default on your student loans when you fail to make your payments. Depending on the type of student loan you have, you could go into default even if you only miss a single payment. Although it can sometimes be difficult to make your payments each month, skipping a payment or paying after the due date can have serious consequences that can affect your wages, credit score, and even your employment eligibility. What could happen if you default?
1. Your Loan Repayment Accelerates
Once you default on your loan, your repayment schedule could accelerate. What this means is that the unpaid balance of your loan, including the interest, will be due immediately. If this happens, you will need to contact the holder of your loan to make arrangements to pay. If you fail to follow through again, your loan will be placed with a collection agency, and you’ll be responsible for any fees the holder pays to the agency.
2. You Lose Loan Aid Options
Default can cause you to lose loan aid options such as loan deferment, forbearance, and repayment plans. Deferment and forbearance allow you to reduce or postpone your payments for a specific period of time. These options are specifically designed to help you so you don’t default, but after the fact it is too late. If you think you may have trouble making a payment, contact your loan servicer as soon as possible and ask about these options so you can avoid going into default. A defaulted loan will also prevent you from accessing future federal financial aid.
3. Your Wages Can Be Garnished
If you fail to make payments, the government can take up to 15 percent of your net pay. Your student loan holder has the right to ask your employer to withhold some of your earnings and send the amount to them as payment on your loan. Private lenders can garnish up to 25 percent of your pay. Your income tax refund and federal benefits payments might also be withheld and sent to your holder as payment.
4. You Might Be Taken to Court
It is possible for your loan holder to take you to court to force you to pay what you owe. In that case, you would be responsible for any court costs, collection fees, attorney’s fees, or any other related costs.
5. It Can Negatively Affect Your Credit Score
You may not know this, but your student loan payments actually contribute to your credit score. If you make your payments on time and in full, you establish credit and help to build your credit score. But when you miss a payment, and especially when you default on a loan, it will be reported to credit bureaus. It will negatively affect your credit score, which can affect your ability to buy a car or get a credit card. It can take years to reestablish good credit, so for this reason alone, think twice before you miss a student loan payment.
6. It Can Impact Your Ability to Get a Job
As part of your background check, employers often run a credit check as well. A poor credit score or a ding on your credit check can be a red flag for employers, particularly if you apply for a job that has financial responsibilities.
Paying back your student loans can be a challenge, but you don’t have to default on your student loans. Charter College graduates are the proof—our student loan default rate is below 10%. We want to help you succeed both in and outside of the classroom. That’s why we offer training programs in Business, Health Care, Information Technology, and some of the Trades, and Financial Aid to those who qualify. Ready for a real career? Let us help you get started. Call today at 888-200-9942 or fill out the form to learn more.
