Student loan default – How serious it is?

22 April 2014 | Uncategorized | Tags:

The consequences of loan default in general are so severe that your credit ratings get affected making it difficult to obtain traditional loans from banks or other financial organizations for reasonable interest rates. Student loan default has worse consequences leading to a very troublesome situation. However, it is not impossible to overcome the grave situation if you take appropriate measures. Student loans are supportive to pursue higher education and these loans are offered by federal government and other private lenders at Most of the students find it difficult to continue their education without availing loans either from the government or from private lenders or both.


Credit history gets affected if you default on student loans


The interest rates are quite low for student loans and the terms are quite flexible allowing the students to defer loan repayments in case the borrowers are yet to get settled in a comfortable job with decent income. However, at some point of time the students need to begin repaying the loans. With accrued debts, most of the students find repayments quite stressful. If for some reason, the student fails to make the repayments as specified in the loan agreement, we can say that the loan is being defaulted. The major consequence is that the credit record of the student is much affected.


As you are aware, the credit record is highly important in many aspects. The lenders might take legal action against the borrowers to recover the loan amount or might dispose the collateral in case of secured loans to recover the amount lent. Some of the lenders consider extending the loan term if a major portion of the loan is repaid. In this situation, the lenders need to charge higher interest rates. There is yet another major issue in defaulting on the loan. It becomes difficult or almost impossible to get conventional loans for lower interest rates.


Default on student loans will make the phone ring off the hook as the collections agencies are after you. Continuous harassment from the aggressive collection agencies hired by the government keeps troubling you repeatedly for the loan settlement. If you are employed in a decent job, the lenders might file lawsuit against you. Since you owe money, you will not win the suit. Once you lose the case, the collection agency might opt to file petition for garnishing your wages. This will be submitted to your employer who is required to send a part of your salary to meet the monthly payments along with some penalty charges to the collection company before you get your pay.


Till you settle your student loan completely, the tax refund will be taken by the government. Besides these issues, there are possibilities that you lose chances of getting good employment. It becomes difficult to lease a house. When you approach banks or other conventional lenders for loans to purchase house or vehicle, your application gets rejected due to the bad credit history on account of loan default. However, there is the offer to rehabilitate the student loan. Through this program, you are offered provision to make payments in a more comfortable manner. The default status is removed and the seizure of tax refund amount and wage garnishment will not be there anymore.


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