Paying your student loans can be difficult after you graduate or leave school, particularly if you have difficulty finding a sufficiently high-paying job to meet your expenses. Student loan debt can strain your finances while you look for a job or accumulate experience necessary for promotions and raises in your career field. However, failing to meet your student loan debt repayment obligations can result in serious consequences.
Credit Damage
Making a student loan payment less than 30 days late typically will not impact your credit score. However, if you allow your student loan account to become more than 30 days past due, your lender may report your delinquency to credit bureaus. This can lower your credit score and make it difficult to obtain credit cards, buy a car or qualify for a home mortgage. As your student loans fall farther behind, delinquency reports will have an even greater negative impact on your credit score.
Ineligibility for Future Aid
If you allow your student loan account to become severely delinquent, usually 270 to 360 days past due, your lender will deem your loans to be in default. A default status on your federal student loans will prohibit you from obtaining future financial aid to pay for education costs, even if you pay off the student loan at a later date. This means that you will not qualify for federal financial aid for your own post-secondary education expenses or those of your children.
Collection
In the early stages of delinquency, your lender will typically limit collection activities to phone calls and letters. However, if you default on a student loan, the lender may employ more aggressive collection strategies. It can typically garnish a portion of your wages, subject to state and federal limitations. A lender may also freeze your bank account and force your bank to turn over your account balance to pay against a defaulted student loan. If you own a home, the lender may obtain a lien that prevents you from selling the home until you pay off your student loan.
Preventing Default
As a federal student loan borrower, you can take advantage of several options to prevent default and the consequences of not paying your student loan debt. Contact your lender as soon as you determine that you cannot afford your payments. Your lender may agree to a temporary forbearance or hardship deferment to postpone your payments. It may also offer an income-sensitive or graduated repayment plan to lower your payments until your income increases.
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