Default on Student Loans?

1 Answer

Answer :

Defaulting on a student loan is a serious matter. Student loans can not be discharged in bankruptcy, nor are they ever "written off" after a borrower has failed to pay for a certain length of time. There is no statute of limitations on student loan debt. The Department of Education can come after delinquent borrowers at any tine. The consequences of defaulting on student loans are severe, but luckily there are alternatives.Consequences of DefaultingA borrower can experience numerous consequences as a result of defaulting on a student loan. The Department of Education will begin the collection process by going to court to get a judgment against the borrower. It will then begin garnishing his or her wages. The Department will also seize the borrower's tax refunds each year until the loans are paid off. In some cases, the borrower's assets may also be seized. In addition, default makes the borrower ineligible to receive any more federal or state financial aid.This is only the beginning of the problems he or she will face, however. If the borrower has a security clearance, it will be revoked. This could result in the loss of a job. Borrowers in default are not eligible to apply for jobs with the federal government. They are also not permitted to hold a passport. The garnishment of wages and tax refunds can continue right up until the borrower dies. Even Social Security retirement or disability checks can be garnished.Alternatives to DefaultBorrowers have a number of options available to them to help stave off a default if they can not make their loan payments. First and foremost, any borrower who experiences financial hardship can apply for an Economic Hardship Deferment. This defers loan payments until such time as the borrower's finances improve. In some cases, a borrower may be eligible for a forbearance that would also delay loan payments. Finally, there is the Income-Based Repayment Plan, which bases a borrower's payments on his or her income and family size. The IBRP can reduce a borrower's payments by up to 90 percent. In addition, after making payments under the IBRP for 25 years, the borrower's remaining debt, if any, is automatically forgiven.

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