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What if i default on a student loan

what if i default on a student loan

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Lower Credit Score

Your credit score drops whenever you make a late payment on a student loan. All you have to do is miss a single payment on a private student loan and you go into default. A drop in your FICO score means that you will pay more for any type of credit in the future. Late payments also show up on your credit report. Even if you pay off the loan after you default, the delinquency will continue to appear on your credit report for up to seven years. Consolidating student loan debt can hurt your credit as well, although this financial move incurs less damage to your credit score than defaulting on the loan.

Late Penalties

Paying off the loan after it has moved into default will cost you more money. In addition to owing the original amount of the loan, you will owe late payment penalties and fees. Penalties can differ depending on the lender and type of loan you have. If the lender turns your loan over to a collection agency, you will be responsible for paying the costs related to collecting on your loan. Besides the collection agency adding its costs onto the loan amount due, other costs may include court costs and attorney fees.


Even if your

student loan is unsecured, the lender can take legal action against you to recover the entire amount of the loan you owe. If the lender wins the lawsuit, a judge may order a lien against your income or liquidation of your assets to satisfy the debt. When the court signs a judgment, the lender can then file a request for garnishment. This means that the lender has a right to take money from your bank account or wages. State and federal laws limit the amount a lender can garnish from your pay after taxes.


You may be able to declare bankruptcy if your financial situation is bad enough, although bankruptcy can affect your credit standing for up to 10 years. Since student loans generally are not dischargeable through bankruptcy, you must show that you qualify for an undue hardship petition. To do so, you must prove that you made an honest effort to repay the debt, but are unable to maintain a minimum standard of living and still make the lowest monthly payment. You must demonstrate that you expect the conditions that are preventing you from repaying the loan to continue for most of the loan term. If you satisfy the requirements and the court grants an undue hardship discharge, in most cases, the court discharges only a portion of the debt.

Category: Credit

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