We have talked about how student loans can hurt you if you do not repay them, but we haven’t really got into details. Here I will cover this subject a little more finer as it is very important for those that may be thinking about applying for a loan in the future, or for those that are about to graduate and start repayment in the near future.
Believe it or not there are a lot of borrowers that are out there that will just ignore the repayment status when it starts, which usually begins 90 days after graduating from school for most types of loans. If you refuse to repay for 270 days, the loan is past due, but after that the student loan will get what it called a default status, which is not a good thing.
Once a loan is in the default status it is then turned over to either the state, or to the Department of Education. This makes it so the entire payment of the loan is due immediately, speeding up the repayment process drastically I may say.
There are many consequences that will follow when a loan gets put into the default status. One of these is you could be sued by the borrower for the entire amount of the loan. If you took out a big chunk of money you can almost count on being sued. If you are lucky enough to not get sued, the amount of the loan will be turned over to the collections agency.
The borrower of the loan will also have to pay all of the costs that the lender made in reference to get back the loan. This may include court fees and costs, or even attorney fees, and we all know that is not going to be cheap. Having a student loan go into the Default status could also intercept your federal taxes. Not only that, since the amount of the loan is in the governments hands, they may withhold some of the Social Security benefits from you as well.
Those are the worst penalties, but also, you can be sure that this is going to affect your credit in a very serous manner. You will have a very hard time getting a car loan, and an extremely hard time trying to get a mortgage too. On top of that, you may not even be able to apply for any type of credit card either.
You must also be aware that when you have a poor credit score, that it can also affect your chances of getting a good paying job. Not all is lost though when your student loan gets into the default status. There are things that you can do to get yourself out of it, as lenders are always willing to work with you to make sure that they get back the money that they had invested in you.
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