What Happens if You Default on Your Student Loans?
You are certainly not alone if you are wondering what happens if you default on your student loans. There are scores of others out there who also are struggling to make their student loan payments and the current state of the economy is not helping in the least. In fact, during the latest economic downturn student loan defaults have increased.
The government has some pretty impressive tools it uses against borrowers who do not make student loan payments. For starters, the IRS is poised and ready to take your income tax refunds until you make good on your student loans. This is perhaps the most common method used to collect student loan payments as the US Dept. of Education collects hundreds of millions of dollars this way each and every year.
You also can expect Uncle Sam to ask your employer to garnish part of your wages so that the money can go toward your unpaid student loans. In fact, the government can take up to 15% of your disposable income this way but it cannot take more than the equivalent of 30 times the current federal minimum wage. You also can lose federal benefit payments including Social Security retirement and disability benefits (but not Supplemental Security Income) as reimbursement for your unpaid student loans. The one and only positive here is the fact that the feds cannot take any amount that would leave you with benefits less than $9000 per year or $750 per month and it cannot take more than 15% of your total benefit.
If you hold a professional license of some sort, some states in the US allow professional boards to revoke, suspend or refuse to certify a license of a member who has defaulted on his/her student loans. Those most usually affected are teachers, lawyers, medical professionals and state officials. You also can be sued by the Department of Education, believe it or not. There is no statute of limitations in effect for federal student loans which means the Dept. of Education can sue you at any time if you fail to repay your student loans. You could end up seeing your bank savings being given to the Dept. of Education as well as your valuable property. The Dept of Education also can have a lien placed on any property you own which will disallow you from selling it.
These actions are common examples of what happens if you default on your student loans. There is more however. Your credit score will take a direct hit which will drop your credit rating. This will make it very difficult and quite possibly completely impossible for you to get a credit card, another loan of any type and even that new job you have your eye on. Considering all of the negative things that can and most likely will happen if you default on your student loan you should be convinced to avoid default at any cost.