Many individuals in the US borrow student loans to complete their higher education. After graduation, the student is obliged to return the payments in monthly installments.
However, there are times when a student is unable to repay the loan, and thus ends up becoming a defaulter. Not only will you damage your financial standing – if you don’t pay the loan on time – but you will face several other consequences as well. Let’s find out what happens if you don’t pay your student loan.
Consequences of not paying student loan
No one wants to be a defaulter because they don’t feel like repaying their student loan. There must be some financial constraints that hamper one’s ability to repay the loan. There could be many other reasons that may affect your repayment ability, including loss of a job, personal emergency, cut in wages, etc.
If you are going through such a situation, the best option for you is to talk to the concerned authority about your problem, and get a solution before it gets too late. However, if you are not proactive enough, you may face severe penalties for not reimbursing your borrowed money.
These forfeits depend on your lender, however, everyone will have to go through these common consequences.
What happens if you don’t pay your student loan?
Your credit history will have negative effects
One of the major blows – that you’ll face – is damaging your credit history. Repayment of debt on time makes around 35% of one’s FICO credit score. If one is unable to maintain it, not only he becomes a defaulter. It also hampers the chances of getting more loans in future. Moreover, once your record includes default or late payment, it will take several years to clear it from your records. Remember, a single late compensation can remain on your record for over seven years.
You may stop getting your tax refunds
If you don’t pay your student loan by yourself, the government will take away your tax refunds to compensate for your owed amount. Instead of getting the return on taxes that you file annually, the government will take that money, and will reimburse your defaulted loan. However, if you have acquired a loan from a private lender, they have no right to confiscate your tax refunds.
Your private lender may not have any right on your tax refunds, but one can garnish your wage. If you don’t pay your loan on time, your lender may get a court order and garnish your wages to get their full reimbursement. Moreover, the lender has a right to take away the amount from your paycheck, even before it reaches you.
You may not get loans in the future
Living in the US is easy because you can take small loans and buy things that you need. Many people take loans to buy a house, a car, or get it for personal expenses. However, if you are a defaulter, you may become a liability for other lenders in the future. As stated above, if you don’t pay your loan on time, you damage your credit history, and good credit history is the primary condition to avail loan. Thus, you will have difficulty in receiving the loan in the future.
Your lender may sue you
If you are in default, and have borrowed a loan from a private lender, there are chances that the lender may sue you for not paying the due amount. It means you will have to defend yourself in court for the allegations of contract breach.
The above-mentioned consequences are just general penalties that you will face. There can be more damaging consequences, depending on the terms of your contract with your lender. This is why you must never falter to repay your student loan. If you have any financial difficulty, talk to your lender and sort everything out before the situation gets out of control.