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Defaulting on student loans can have far-reaching and long-lasting consequences. Understanding the repercussions is crucial for anyone struggling with student loan payments. This post will discuss the 12 significant impacts of stopping payments on your student loans.
Lower Credit Score
One of the immediate effects of missing student loan payments is a drop in your credit score. Late payments are reported to credit bureaus, which can significantly lower your score.
Difficulty Getting A Job
Some employers check credit scores during the hiring process. A low score due to student loan delinquency can hinder your chances of securing certain jobs, especially in finance or government sectors.
Ineligible For A Government-Backed Mortgage
Defaulting on student loans can make you ineligible for government-backed mortgages like FHA loans. This can limit your options when trying to buy a home.
Deductions From Your Wage
If you default on federal student loans, the government can garnish your wages. This means a portion of your paycheck will be automatically taken to pay off your debt.
Calls From Collectors
Defaulting on your student loans can lead to persistent and often stressful calls from debt collectors, seeking repayment of the overdue amount.
No Loans In The Future
Having defaulted student loans can make it difficult to get approved for any future loans, including car loans, personal loans, or additional student loans.
Penalties, Fees & Interest
Defaulting on student loans can result in additional penalties, late fees, and compounded interest, increasing the total amount you owe.
Tax Refund Seizure
The government can seize your federal and state tax refunds to pay off defaulted student loans, leaving you without this expected financial resource.
Loss of Eligibility for Deferment or Forbearance
Once you default, you typically lose eligibility for loan deferment or forbearance, which are ways to temporarily reduce or pause your student loan payments.
Lenders, particularly private ones, may sue for repayment. This can lead to legal fees and potential court-ordered judgments against you.
If you have a cosigner on your student loans, they will also suffer the consequences of your default, including damaged credit and potential legal actions.
Professional License Risks
In some states, defaulting on student loans can lead to suspension or revocation of professional licenses, hindering your ability to work in your chosen field.
The implications of stopping student loan payments are severe and multifaceted. It’s important to seek assistance or explore alternatives like loan modification, consolidation, or income-driven repayment plans if you’re struggling with payments. Ignoring student loan obligations can have enduring negative effects on various aspects of your life.