What Happens If I Don't Repay My Federal Student Loan?

Answer 1

Many students use federal student loans to pay for their college education. However, some students have a difficult time repaying their student loan debt once they graduate from college. If you borrow money for school, you definitely have to pay it back. If you do not repay your student loan, then you can face serious problems. Read on to learn how a past due federal student loan debt can affect your future.

Negative Credit History

If you fail to repay your student loan according to the terms and conditions outlined by the lender, then you will be in default. If you default on a student loan, the lender may report this information to the major credit bureaus (TransUnion, Equifax, and Experian), which can damage your credit history. Having a defaulted student loan on your credit report can make it difficult for you to obtain credit in the future from another lender or financial institution. In addition, a defaulted student loan may remain on your credit history for up to seven years.

Collection Agency

If you default on your federal student loan, the lender may send your account to a collection agency. So, in addition to repaying your student loan debt, you will also be responsible for paying collection fees and possibly other penalties, such as late fees. The collection agency may also report your past due account to the major credit bureaus. Therefore, you will have another negative item appearing on your credit report (one item from the lender and one item from the collection agency).

Lawsuit

The lender or collection agency may choose to file a lawsuit against you and take you to court for your unpaid student loan debt. If the lender or collection agency wins the lawsuit, they will receive a judgment against you, which may allow them to garnish your wages from your paycheck, or freeze your bank account. In addition, the government can garnish your income tax return, in order to repay your federal student loan debt. Please note that a judgment can appear on your credit report under the public records section. This type of negative information can harm your credit history.

No More Financial Assistance

If you default on your student loan, you will be ineligible to receive any type of federal financial aid in the future to pay for your college education. However, if you repay your federal student loan, (or work out a payment arrangement with the lender) you may qualify for financial aid again in the future.

As you can see a defaulted student loan can cause severe consequences for a student. Therefore, it is important to make your student loan payments according on time. If you are having difficulty repaying your federal student loan debt, contact your lender as soon as possible to discuss your repayment options. The lender may adjust your repayment schedule to suit your financial needs. In addition, you may qualify for a deferment or forbearance, which will temporarily suspend your payments for a certain amount of time. Please note that if you qualify for a forbearance, interest will continue to accrue on your student loan during this time period. By all means try to repay your student loan debt in a timely manner.