Oops! My Student Loans Are In Default! What Do I do Now?

student loansMost student loans are considered in default when the borrower fails to make payments for 270 days. Private student loans may have different terms and may consider the student in default if they miss just one payment. 

Read your loan contracts carefully! Be sure you understand to read your loan agreement before you sign it. Read the sections about what could put you risk for defaulting. Then do everything you can to prevent it.

The following lists should convince you that defaulting on your student loans can lead to overwhelmingly negative consequences.

Consequences and Penalties When Student Loans Go Into Default

If your student loans go into default, here are some of the difficulties you may face:

  • Your lender will accelerate your loan. This means the full loan balance, including interest, will be due immediately. 
  • The loan will be assigned to a collection agency who will add additional fees to the balance of your loan.
  • Your loan balance will skyrocket. The collection agency will add late fees, added interest, court costs, attorney fees, and any other expenses incurred during the loan collection process. 
  • You will no longer be eligible for deferment or flexible repayment options. 
  • You will lose all eligibility for additional federal student loans and grants.
  • Your federal and state tax refunds can be seized by a state or federal agency.
  • A portion of your Social Security disability or retirement benefits can be seized.
  • The federal and/or state government can garnish your wages.
  • The government or private loan holders may pursue legal action you.
  • The lender can also pursue payment from your cosigner will be on the hook for the debt.
  • You may also find yourself caught in a situation where you have astronomical debt. 

New York State Higher Education Corporation Doesn’t Screw Around If You Default On Your Student Loan

student loansNew York State Higher Education Corporation doesn’t screw around when borrowers default. Although NYSHEC collection agents are tough they aren’t as brutal as New Jersey.

NYS may impose penalties such as refusing to renew your professional license. They could also deny access to school records.

Furthermore, members of certain professions may face unique and sometimes harsh penalties.

Medical professionals who have defaulted on HEAL Loans will have their names published on the Internet.

They are also barred from participating in Medicare and Medicaid programs. Additionally, medical professionals with defaulted loans can’t accept payments from those programs. Nor can they work for any organization that has contracts with Medicare or Medicaid.

Student Loan Default Can Seriously Damage Your Credit

One of the worst and most tenacious consequences of defaulting on student loans is the damage it can do to your credit rating. If you let your loans go into default, it will take years to mend your credit report. In the meantime:

  • You may not be able to get a mortgage, car loan, or credit cards.
  • You may have trouble renting an apartment.
  • Lenders may increase interest rates on your existing loans or credit cards.
  • You may have trouble opening bank accounts or obtaining insurance policies.
  • Potential employers may check your credit report and turn you down for jobs.



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