WHAT HAPPENS IF I FALL BEHIND/DEFAULT ON MY STUDENT LOANS?

It can be tough to keep up with your student loan payments, especially considering the increasing cost of tuition in recent years. Even so, you should always try your best to manage your loans, because falling behind or defaulting can lead to a host of negative consequences. Student loans are generally not dischargeable in bankruptcy after all, unless you sue and successfully establish undue hardship. In case you should ever default on your student loans or fall behind on payments, it’s important to understand what comes next.

What it Means to Default

Defaulting on student loans means failing to pay back the lender based on the terms of your loan agreement. You can reach default status in several ways—whether you’ve waited too long to make a payment, you violated your loan’s terms and conditions, or you received the student loan in a fraudulent manner.

The first time you miss a payment on the day it is due, your loan will become delinquent the next day. The time period before going into default can vary depending on the loan servicer and your contract with them, but for federal student loans, you will typically default after 270 days (or 9 months) have passed without making a monthly payment.

What Happens Next

The first thing you should know is that when you default on your student loans, you will immediately owe the entire outstanding loan balance—not just the amount you’ve failed to pay so far. After that, the lender may take several different steps to collect the debt you owe. Here’s what you can expect.

You’ll hear from a debt collector. If you’ve already missed a few loan payments, your student loan servicer may have already contacted you by phone or email, asking you to fork out the money. When your account goes into default, the loan will be assigned to a debt collector, who may contact you even more aggressively to recover the balance you owe.

Your amount owed will increase. Although it may seem counter-intuitive, your loan default costs money. You will owe more money based on interest, debt collection fees, and fees for any legal activity that the lender has taken to resolve your default.

Your credit rating will drop. Your lender can report your missed loan payments and the default to the major credit bureaus, which will damage your credit score. A poor credit rating can make it more difficult for you to get a credit card, start a new cell phone plan, finance a new car, or rent an apartment, to name a few.

The IRS can seize your tax refunds. If you’re entitled to an income tax refund while your student loan account is in default status, the IRS can intercept your tax refund until your loans are fully paid.

The government can garnish your wages. Wage garnishment happens when the government takes some of your wages to pay for your student loan. The silver lining is that it can’t take more than 15% of your disposable income. The government can also take part of your federal benefit payments, like Social Security retirement and disability benefits, to reimburse your unpaid balance.

You may be sued. Whether your loan was granted by a private lender or the federal government, you can be sued for the purpose of recovering your defaulted loan. There is no time limit to sue for student loan collection, so be aware that you can be sued indefinitely.

What You Can Do About It

If you’ve missed a few student loan payments or you’re close to defaulting, the main thing to remember is that you shouldn’t panic. The prospect of defaulting may seem scary, but you still have legal recourse available to you. A qualified attorney can help you challenge a tax refund offset, object to a wage garnishment, defend yourself in a lawsuit, and much more. Contact the Law Offices of B. David Sisson to speak with a lawyer who will defend your rights to the fullest extent of the law.