Students often borrow money to pay for college. Some students have difficulty paying back those loans, which could be substantial depending the amount owed. The U.S. Department of Education, the loan guarantor on non-private loans, offers deferment, forbearance, income-sensitive payments and cancellation options to help students avoid default.
Bad Credit
Your student loan creditor, the financial institution that loaned you the money, reports information about your defaulted student loan to the credit bureaus: TransUnion, Equifax and Experian. Such information can result in a low credit score. Having bad credit and a low credit score could prevent you from being approved for credit cards, mortgages and auto loans. You could also have difficulty renting an apartment if you apply for housing in a development that pulls credit reports as part of the application process.
Wage, Benefit and Tax Garnishment
The government can garnishee your wages without a judgment by as much as 15 percent if you walk away from your student loans. The DOE can also garnishee your Social Security benefits when you retire by the same amount. Any tax refund your receive could be confiscated during the time your student loan is in default. The DOE, however, does allow you to dispute a wage garnishment order or to start repaying your student loans before the garnishment order goes into effect.
Background Checks
Some federal and private-sector jobs perform background checks on potential employees before making job offers. You could lose job opportunities if you have bad credit as a result of not paying your student loans. Some companies may even allow you to start working on a preliminary basis while they conduct a background check and then terminate you if your credit report shows adverse information.
Lawsuit
The DOE can sue you and place a lien on your property if you refuse to pay your student loans. You could end up being forced to repay your student loans, plus legal fees, if a judge rules against you.
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