Unfortunately, there can be many negative consequences of failing to make your student loan payments, including wage garnishment, a drop in your credit score or a suspension of your professional license. Failing to make payments on your federal or private student debt can have serious negative impacts on your overall financial picture.
The first day after a missed loan payment, your loan becomes delinquent, and it stays that way until your payments are up to date. Each missed payment might also result in a late fee. You have a chance to catch up before it negatively impacts your credit. But in the case of private loans, your lender may report it to the credit bureaus as early as 30 days past due.
Having late payments on your credit report can negatively impact your credit score and make it more difficult to open credit cards, borrow money or even get an apartment. The longer your loans are past due, the worse the ramifications become.
After your direct federal loans are more than days past due, they enter default. This process happens much quicker for other loans. Private student loans enter default after days, and Federal Perkins loans can enter default immediately after a missed payment.
Your credit will take a much larger hit than it would for just a late payment. You may also face wage garnishment or other legal action. Note: Federal student loan payments are currently suspended due to emergency action by the federal government in response to the COVID pandemic. Federal student loans have no statute of limitations, meaning the government can try to collect their money for as long as they want. Unlike other debts, student loans are rarely discharged during bankruptcy though there are some notable exceptions.
One clear path to getting rid of federal student loans without fully paying them off is to become eligible for student loan forgiveness or discharge. Keep in mind that forgiveness programs often require you to make on-time payments for a specific number of years.
Private student loans do not qualify for forgiveness programs. The statute of limitations for private student loans is decided at the state level, meaning you may reach the point where your lender can no longer take legal action to recover the loan amount. However, the debt may be sent to a debt collection company.
Keep in mind that the loan will stay on your credit report for seven years from the first delinquency date, which may create problems in other areas of your life. After a certain number of days, a lender can report the issue to credit bureaus, which can adversely affect your credit score.
This can impact your life in several ways, including making it more difficult to qualify for credit cards, buy a car and get a mortgage. They can continue to do so until your student loan has been paid in full or you remove it from default. Note: Collection agencies are currently prohibited from wage garnishing due to the COVID student loan relief effort.
Given the size of this burden and growing political pressure to do something to ease it, many students feel justified in simply ignoring their student-loan-payment obligations. Think paying off student loans is an impossible burden? Missed student-loan payments are reported to the major credit bureaus, which financial companies routinely check before extending credit to consumers. This means that student-loan default or delinquency might make it tough for you to get a credit card or a loan in the future and, if you do, it may come with a higher interest rate.
Increasingly, employers and landlords check credit history for clues as to how reliable their potential hires or tenants are. If you do get a job, the government may garnish your wages as well as tax refunds and government benefits if you have defaulted on a federal student loan.
Under some circumstances, the government or a private lender may sue you for non-payment. This means legal bills could be added to your student-loan debt. If you default on a federal student loan, the remaining amount you owe becomes due immediately. You also lose eligibility for borrower assistance such as student-loan forbearance, deferment or alternative payment plans. Some states suspend professional licenses or drivers licenses if you are in default on a federal student plan, which could seriously hinder your ability to work.
Here are some things that can help:. Plan for how much of your paycheck is going to be eaten up by student-loan payments. Student loan expert Heather Jarvis tells Vice that currently, "The federal government doesn't often sue, because they don't have to. But they will if they think it will get them access to other assets.
Experts predict that the federal lawsuit program will expand in the coming years under Education Secretary Betsy DeVos. Private student loan companies are much less flexible than the federal government. The specific procedures for when borrowers miss a payment vary according to company policy, borrower contract and state law. Joshua Cohen, a lawyer specializing in student-loan debt tells Business Insider , "The only remedy that a private lender has is to sue you, and they are suing you under state law and every state differs.
Private student loan companies are known for aggressively suing students for defaulting on their loans. For example, National Collegiate, the largest holder of private student loan debt in the nation, has lost a series of court cases across the country because they sued borrowers without having the proper paperwork. In these instances, millions in debt balances have been cleared.
In an email statement, New York attorney general Eric T. Schneiderman told CNBC Make It , "These reports are deeply concerning, but are unfortunately consistent with the increasingly cynical and freewheeling culture we've seen take hold of the student loan industry.
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