Student Loan Defaults
A major financial crisis in this country is student loan debt. Borrowers are battling for solutions to manage and payoff their student loans. Many student loan borrowers find themselves struggling to make student loan payments and at the same time maintaining a reasonable standard of living. In fact, many are ignoring the problem and defaulting on the student loans. This is a big mistake and may haunt defaulters for their lifetime.
The following is a list of the major consequences of defaulting on a student loan:
- Wages May Be Garnished – if you default on a federal student loan, the Department of Education can begin garnishing your wages. Unlike regular creditors, the Department of Education does not need to file a lawsuit to garnish wages. There is a 30 day notice period and then they can take 15% of your paycheck.
- Tax Refund May Be Taken – the government has the right to apply your tax refund to your student loan debt.
- May Owe Collection Fees and Costs – if your loan is sent to a debt collector, you will owe significant fees and costs which are added to your loan balance.
- Interest Continues – your loan will continue to be charged interest which is added to your loan balance.
- Credit Score Suffers – student loans are considered delinquent if a payment is not made within 90 days. The delinquency may be reported to the credit bureaus and remain as a negative item on your credit report for up to 7 years.
There are solutions to help you pay for your federal student loans and to assist you in correcting a default. For example, current income based repayment options allow eligible borrowers to cap their monthly payments at 10% to 15% of their pay and some public service employees can have debt forgiven after a period of 10 years.
Student loans are extremely difficult to discharge in a Chapter 7 or Chapter 13 bankruptcy. As a result, it is critical to use the repayment options mentioned above to help alleviate your student loan problem. I will discuss the repayment options in more detail in my next blog.
If you want more details about the repayment option, please call Lewis & Jurnovoy, PA to schedule a free appointment to discuss your specific situation.