Students who do not make payments on their student loans will face crippling financial penalties. Since students can rarely default on federal student loans, they should make every effort to become current on their minimum monthly payments. Most individuals can consolidate their monthly loan payments or make lower payments if underemployment or unemployment hinders them from remaining current on their loan obligations, according to the U.S. Department of Education.
Interest
Individuals do not usually start repaying student loans until six months after they graduate from school or drop below part-time enrollment status at a college, trade school or university, according to the U.S. Department of Education. Stafford federal loans carry an interest rate of 6.8 percent and PLUS loans carry an interest rate of 7.9 percent as of August 2011, according to FinAid. If a student does not repay his loans, interest will continue to compound on the original loan balance and accumulated interest.
Collection
The federal government and private student loan issuers can pursue collection activities if a student neglects to make minimum payments on his loans after the grace period. Collection activities can include wage garnishments, liens against property, a loss of state and federal tax refunds and lawsuits. In the event of a lawsuit, a loan issuer can collect attorney's fees, interest and the original amount of the student loans.
Credit Damage
A student who does not repay his loans will suffer a reduced credit score that will severely restrict his access to home and vehicle loans and cause him to pay higher interest rates on all forms of credit. After the loan issuer reports his loan delinquency or default to the three major credit bureaus, the negative credit information will stay on his credit report for up to seven years, according to FinAid. With private loans, the credit damage from a loan delinquency can hinder a student's ability to refinance or consolidate her loans.
Cancellation
Students who do not pay back their federal student loans can cancel their debt through bankruptcy, total and permanent disability, death or the closure or fraudulent certification of the school they attended. A student can only discharge part or all of her loans through bankruptcy if the loan repayments represent an unreasonable burden to her. Individuals who become teachers can receive up to $17,500 in loan forgiveness, and those who received a National Defense Student Loan can receive a partial cancellation if they served for a full year in a hostile fire zone, according to the U.S. Department of Education.
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