The company that holds your loans can also take you to court, in which case you can be on the hook for various court fees and legal fees. You also lose out on the chance to apply for deferment or forbearance, or to even switch your repayment plan. More ConsequencesĪlso know that skipping payments on federal student loans means you are no longer eligible for more federal financial aid, which can be a problem if you want to go back to school. If you’re planning on getting a tax return, you can kiss it goodbye if you’re in default on your student loans. government (like your tax refund) is reduced or stopped to pay off outstanding loans. This takes place when a payment from the U.S. Treasury offset is another nonpayment consequence that can come into play with federal student loans. This means your take-home pay from your job will be lower, and your employer or someone employed by your company will know about your loans in default.įurthermore, this can happen without a court order, unlike private student loans, in which the servicer must file a lawsuit against you first. Wage GarnishmentĮventually, the federal government can automatically garnish your wages to make up for unpaid federal student loan payments. Since payment history is the most important factor that makes up a person’s credit score, late payments on student loans can have a dramatic negative impact and make it more difficult to qualify for other types of loans and financing. From there, when federal student loans are considered in default depends on the type of loan.Įither way, late student loan payments are ultimately reported to the three credit bureaus - Experian, Equifax EFX, and TransUnion. When a student loan payment is missed (after the on-ramp period), it becomes delinquent within the first day of nonpayment. Here's what you can expect if you stop paying federal student loans: Credit Score Damage So, you should know about the real consequences that come into play if you refuse to make federal student loan payments after the on-ramp period ends in October 2024. However, both of these scenarios are unlikely. There's always a chance the Biden administration or the next president will extend the on-ramp period beyond 12 months, or that Congress will pass some sort of student loan forgiveness plan. Even with this on-ramp period, you shouldn’t skip your student loan payments on purpose.
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