Affording a college education is one of the most crucial obstacles for many students and their families. Financial aid in the form of college scholarships and college grants is ideal but with so many students competing for such rewards, the odds of earning free money for college can be low. In many cases, families opt to apply for student loans. Because this financial aid arrangement involves borrowing money, entering into such an agreement means following strict rules and regulations–one of which involves the subject of repayment.
Most people are aware that bad things could happen by failing to pay back a student loan on time. However, very few realize the seriousness of defaulting. While not meant to be a scare tactic, the information below is meant to be an informative and detailed look into what students and there families could go through in the case of defaulting on student loans. Knowing such information prior to applying for this type of financial aid will help ensure that borrowers fully understand what they are agreeing to and what their responsibilities are in terms of repayment.
Haven’t been able to pay back the loan amount agreed to when you applied for your student loans? Here are some common ways that lenders are legally able to collect money owed to them:
Consequence #1: Wage Garnishment
The word “garnish” is simply a polite way to say “take,” which is exactly what lenders could do if a borrower has defaulted on their loan(s). This process involves having the lender literally take a percentage of a student’s income once they become employed. The actual amount varies from situation to situation but in most cases, lenders are allowed by law to garnish up to 15% of a borrower’s disposable income.
Consequence #2: Going to Court
When lenders don’t get their money, they often turn to the courts. Borrowers can be sued for the amount they must repay–because there is no time frame/deadline for the lender to collect, a person can actually be sued indefinitely.
Consequence #3: Losing Your Tax Refund
Looking forward to your tax refund? If you’ve defaulted on student loans, lenders will act quickly to put that money into their pockets instead of yours via the IRS. In fact, this method is the most widely used practice when it comes to lenders getting money owed to them by borrowers.
Consequence #4: Loss of Federal Benefits
In extreme cases, the government is allowed to take up to 15% of a borrower’s total benefits from federal programs, such as Social Security disability benefits and Social Security retirement benefits. While there are limits to how much they can take, it still isn’t a good result for those dependent on such benefits.
The Solution?
Defaulting on student loans may be inevitable in some people’s cases. If you find yourself in this situation, the best course of action is to stay in constant communication with your lender(s). Avoiding their calls is a surefire way to suffering any or all of the consequences listed above. It is always possible to renegotiate your repayment plan and adjust it to payments you can afford.
