What are the consequences of defaulting on a federal student loan?

Most college and university students take loans from the government, private financial institutions and other organizations. Federal student loans have many benefits than those from other sources. They include direct subsidized loans, direct unsubsidized loans, Direct PLUS loans, and direct consolidation loans.

Even though federal student loans offer low-interest rates with a flexible repayment plan, those who are financially unstable have a rough time repaying them. One should try to make payments as soon as possible because it is a legal obligation. Defaulting payment has the following consequences.

Federal benefits

The government can take away federal benefits such as social security from the loan holder in case they fail to pay back their federal student loan.

Getting Sued 

The government can sue you to collect their loan back. This action can lead to additional charges on the outstanding loan. The loan holder can also end up losing their already obtained assets.

Trimming your pay cheque

The government can take a portion of the loan debtor’s wages through their employer. The loan amount keeps growing after the default as there are additional costs incurred by the loan holder such as interest, late fees, collection fees and court costs.

Garnish your tax refund

The government can seize the loan holder’s tax refund and apply on the outstanding debt. 

No more student loans

The government can stop you from taking any additional student loans, which may affect your future studies.

Revoke or suspend licenses

The government can revoke or suspend licenses of students who are practicing particular professions in that country, leading to loss of income.

Delinquency

Once the student loan is on delinquent, the loan holder gets a bad credit rating. New loan applications may also be denied or given at a very high interest rate. 

Collection agency

In case of a student loan default, the government can forward your name to a debt collection agency. This action substantially increases the outstanding loan due to the additional penalties and collection fees.

Even though paying a student loan can be a huge responsibility to those who are just starting their careers, one can still pay in small installments and eventually clear it.