Life could become challenging and difficult at times. People often become unemployed or fall sick, and they often indulge in massive unanticipated and unplanned expenses. People who are reeling under the impact of massive student loan debt are often defaulting on their loans. In case of the private student loan debt, only missing a few payments could fetch you the default status, as far as, your student loan account is concerned. All this could have serious consequences for student loan borrowers. Defaulting implies that you have broken a loan contract.
As per https://www.forbes.com, there happen to exist some issues with certain pockets of student loan borrowers within the 1.5 trillion total student debt in the United States. Students who fail to complete a college degree would be having relatively lower balances and they are precisely the ones who would be struggling the maximum amount as they perceive no advantages of finishing a college degree. Statistics have revealed that non-completers are supposed to be 3x more likely to be defaulting, and 65 percent of the defaulters are having balances below $10, 000. Here are some of the grave consequences of defaulting on important student loans.
Chances of a Credit Damage
A major and almost instantaneous consequence of defaulting is getting a negative mark straightaway on your current credit report. These late payments would be at once reported to the chief credit bureaus. This could damage your credit score almost overnight. If the student loan is kept on a default, the negative reporting would be going on full-fledged and would leave behind signs of damage in your existing credit report or credit history. Because of the presence of negative marks on your current credit report, it would be quite troublesome for you to achieve loan or mortgage approvals easily. Getting an auto loan or any other line of credit could become challenging. Often employers belonging to the financial industry examine your credentials meticulously and they may even ask for your current credit report that could be jeopardizing your job prospects in the future.
Welcome to the World of Financial Penalties
One of the major implications of defaulting on your student loan debt is encountering a financial penalty referred to as collections charges. In the case of defaulting on your federal student loans, there exist federal laws that necessitate huge collection penalties and charges on your defaulted student loan balances. It is a good idea to seek professional assistance from reputed debt relief companies like NationaldebtRelief.com for expert debt solutions.
Transfer to Collections
Once you start defaulting on your student loans, they are generally taken away from your loan servicer handling the account so far. Your account would be strategically placed with a qualified third-party debt collector. You need to understand that all these specialized debt collection agencies are supposed to be pretty aggressive and somewhat hostile while pursuing the defaulters. They often do not care about existing regulations or laws. Apart from shooting standard letters with threats, debt collectors are notorious for calling people and nagging them. Under federal law some of the debt collection practices are illegal. We know that debt collectors do not have the legal right to engage in unfair, abusive, and deceptive.
A serious consequence of defaulting on your student loan debt is facing a lawsuit. Federal student loan lenders and that includes Department of Education in the United States, are hardly in the habit of suing borrowers who have defaulted on their student loans simply because the government is equipped with several robust tools that do not necessitate court appearances or ligation.
However, private lenders are used to suing student loan defaulters in state court since that is the only effective method of getting a fair judgment and going after a defaulter’s income or property.
Encounter Wage Garnishment
If the problem is not resolved effectively, the borrower would be encountering wage garnishments because of federal student loans. The government and the federal lenders are within their legal rights and administrative power to go ahead and garnish your wages. This implies that they do not require any directives or judgment from the court of law. They simply need to locate your office and inform you that they would be garnishing your wages henceforth. Private lenders, however, do not enjoy the same rights or powers of the federal lenders. They have to necessarily go to the court for justice. They have to sue the defaulter to get a fair judgment. Once they get the necessary legal directives from the court, they could start garnishing the borrower’s wages. Their exact powers would be determined according to the existing state law.
The Amount Keeps Getting Increased
The initial outstanding amount could have been manageable but once you start defaulting, the total amount would keep getting boosted as time passes by. There would be extra interest costs, potential attorney fees, late fees, collection fees, and even court expenses. There would be some other expenses related to the collection process that would also be added to the overall debt amount.
It Would Be Impacting Other People
Often co-signers if any would be pursued aggressively for payment of the student loans. It would become tough for the student in question to buy additional items and it could even impact his kids when they try to apply for their student loans for paying for their higher education. If you are defaulting on your student loans, it is a good idea to seek professional guidance and identify your legal rights.
So you have now got an idea that defaulting on your student loan debt could have grave implications that may upset or ruin your life forever. However, the great news is that you could have easy access to certain options for getting out of default. Certain statutory programs such as consolidation or rehabilitation are offered by federal lenders so that borrowers could take care of their defaults and focus on restoring the status of their student loans and start concentrating on repairing their overall credit report and current credit score. We understand that private student loan defaults would be more difficult and challenging to resolve.
However, sometimes, student loan borrowers are equipped with viable defenses against a collection that could assist them in avoiding any subsequent judgment. Some student loan borrowers could consider negotiating a settlement with their lenders so that they could secure a substantial dip in their outstanding balance.