Borrowers often view student loan debt as a lower priority monthly expense as compared to more immediate concerns. If you become 270-360 days late on a payment, you are considered in “default”. This is what we need to avoid. Defaulting on your federal student loans has serious, long-lasting repercussions:
- Reported to credit bureaus which will affect your credit score for 7 yrs. (impairing your ability to secure financing for a home or car, or get a credit card)
- Garnishment of State and Federal tax refunds until loan is paid in full.
- Garnishment of up to 15% of your wages.
- Responsible for collection costs if sent to collection agency (can increase loan by 25%)
- Dept of Ed can take legal action with borrower responsible for court and attorney costs.
- Not entitled to deferment or forbearance options.
- Will not be eligible for any Title IV financial aid until out of default.
- Federal student loan debt cannot be forgiven by declaring bankruptcy.