The Consequences Of Defaulting A Student Loan

Students usually take out student loans for paying their college tuition fees

. They definitely have the best of intention to pay the amount back in due time. However, life is not always a rosy affair and hence defaulting on a student loan is a reality for many a youngster. A loan is said to be in default when it exceeds the specified contract terms. It is also said to be defaulted if the lender does not receive the payment for consecutively 270 days. If he receives occasional payments, then he may extend the time till 330 days at the most. The time between the delay in payment and the declaration of defaulted student loan is known as the delinquent period. If the borrower does not contact the lender during this period, the loan is termed as a delinquent student loan. Once the loan is declared to be defaulted, it is turned to an agency for the purpose of collection. The agency then pursues a variety of collection procedures along with a legal process. The government in such cases can receive payments from your income as well as tax returns until the debt is settled. The worst part in such scenario is that this default is reported to the Credit Bureau.

Once a delinquent student loan is reported to the Credit Bureau, this can affect many aspects of your life as a whole. It will affect your job prospects as most of the employers will not hire an employee with bad credit ratings. Other private lenders like banks will not want to deal with you if you have a loan default on your credit record. This eventually will damage your purchasing chances in the near future. Also, a defaulted student loan will not allow you to use deferment option or forbearance as an option. Defaulting on a student loan has its consequences that are severe. The education department can demand a total repayment of the loan amount immediately, else they will take an attempt to collect the debt from you and also charge you with the collection costs. Also a defaulted student loans means, you are denied the Title IV student aid. Also your wages may be garnished up to 15% of your gross income. All these means that the total amount of student loan may cost you up to 18.5% of the principal and interest on the defaulted amount.

Therefore, if you are running the risk of a delinquent student loan, take immediate action now. Contact your lender as he is the right person to tell you your options. Setting up a reasonable repayment plan is often enough to avoid any further action from the lenders. Most lenders are actually willing to listen to your pleas and ready to negotiate with you as long as you continue to communicate with them as they too want to avoid the hassles of a collection process. Therefore, if you sense trouble with your student loan, contact your lender immediately to know your possible options.

by: Steve Warner

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