If you default on your car loan, the bank can take your car. If you default on your mortgage, they can foreclose on your home. But you can't take back an education, so what are the consequences of defaulting on your student loan? They may be worse than you realized.
1. It could affect your ability to get a job. More employers than you think run credit checks on job candidates. Many companies see bad credit as a sign of irresponsibility. It could cost you your ability to land your dream job. Most student loan programs have deferment and forbearance options. If you are running into financial trouble, don't avoid your bills. Call your loan servicer (the company that sends you your bill) and explain your situation. Ask how they can help. It will be worth it!
2. You won't be able to borrow for education in the future. If you are defaulted on a federal student loan, you won't be able to borrow from the federal government for education in the future. Plus, you will likely be cut off from receiving any non-federal loans, as they typically have more strict credit criteria. If you default on a loan, it seriously impacts your credit for the worse.
3. The IRS can keep your tax return. You know that excited feeling you get each spring when you see that you are going to get a tax return? If you are defaulted on a federal student loan, the IRS has the right to withold your return to pay the balance on your defaulted student loans. Remember, if you can't afford to make your payments, options may be available to you. Just call!
4. You could be sued. It isn't just a threat lenders make. It can happen if you default. And not only is it frustrating and embarrassing, it is costly.
5. Your wages could be garnished. In some cases, your wages could be garnished and depending on where you live, it could mean as much as 25% of your income is paid directly to your lender instead of going into your pocket. This is not to mention the fact that it is embarrassing for your employer to receive notice that they need to be keeping some of your paycheck to pay on your defaulted debt.
Don't want to experience these consequences? Before you borrow, make sure you understand what your monthly payment will be, investiage starting salaries for graduates in your career, create a budget, and remember - if you get into trouble - just call your lender. Student loans have much more flexibility than any other type out there.