Student loans serve as the hope of last resort for people in need of support for their academic needs. The federal authorities guarantee a vast majority of student loans, and the student loans are straightforward and easy to get.
Ironically, records have it that a more significant percentage of borrowers struggle to pay back their student loans. Some have abandoned the repayments while others may even travel out of the country.
In the US, at least 3000 defaulters are recorded daily, while about 44 million people are indebted to the tune of about $21 trillion. These delays and difficulties in repayments are due to the challenges in the job market and the general economic instability.
In the midst of these, people are still oblivious of what will happen if they fail to pay back their student loans. They have no idea about the consequences that will befall them.
Read More: Do Student Loans Affect Credit Score?
Here are some things that may happen if you don’t pay up your student loan
1. Not a Death Sentence
Failing to pay your student loans is not a death sentence. The police or army may not come after you, but failing to repay your student loans is never a good idea.
Ignoring your student loans comes with many negative consequences, you may not serve a jail term, but you will undoubtedly be in an emotional jail. In some cases, these consequences are akin to owing debts on your credit card, and the experiences are unpleasant.
2. Extra Days of Grace
When the due date exceeds, your lenders will give you some days of grace. If you still refuse to pay, then they will include your account in delinquency.
Your lenders will contact you on 30 and 60 days past the due date. They do the same on 90 days after the due date. They will bombard you with a series of calls, emails, and messages to check whether you have plans of paying back the loan.
3. Negative Account Credit
Your credit rating will hit the negative as your account will be tagged ”delinquent” after 90 days of non-repayment. At this delinquency state, the financial institution will call or text you regularly to remind you of your debt.
Your account will be placed in delinquency, even if you have made part-payment. The three major credit bureaus get informed of your refusal to pay, and this will have pervasive negative impacts on your reputation and endeavours.
4. No More Grant
You will not get approval for a new credit application because you fall into the category of a risky borrower. If they decide to grant your loan application, it will be at a very high-interest rate. There are several other negative impacts of bad credit ratings.
Bad credit rating can affect your chances of getting employed because it can also serve as a determinant for your character. Some human resource managers of companies usually rely on the data from the credit bureaus to check the integrity of their potential staff before any employment.
Telecommunications companies also do the same, likewise other utility companies. They will not consider you as creditworthy, and they may demand a security deposit before granting you any service.
Some landlords also review credit bureau data, so your house rent application may be denied.
Your institution gets informed if they had signed any of the documents during your loan application, which will not augur well with your reputation.
5. Your Referees Will Be Notify
Your guarantor will get a notice, and they will do their best to ensure that you pay. Guarantors are highly revered people, and you may tarnish the relationship with them if you fail to pay.
6. ”Default” Status on Your Debt Profile
Your debt profile will slide into ”default” status if your debt is 270 days late. At this stage, your borrowers will forward the case to debt recovery agencies. There are several student loan recovery agencies in the US, and they will do their best to recover the debt from you or your guarantor, but with strict adherence to the Fair debt collection practices Act.
Read More: What is Student Loan Forgiveness?
This comes at an additional cost because of the new financial implications involved in the debt collection. You may be charged legally, and the extra expense and interest rate will rise vastly.
There are dire consequences that come with these, so there is ample need to repay before your debt profile before it goes into default.
Here are some of the bad things that will befall you if your loan debt goes into default.
- The federal government can be involved in the debt collection if it lingers for some years, and you still refuse to payback.
- They will monitor your income to know whether you can pay back or not. If you are earning well, then the federal government might take part in your tax refund and apply it to your debts.
- They can contact your employers, and some percentage of your salary will be used to repay the outstanding debt.
- You will be responsible for paying back the outstanding loan as well as any interest that has accrued on loan. This can be quite hurtful and has nasty effects on your finances. A debt of $1000 can quickly increase to $50,000 after accumulating interests for some years.
- You will no longer be eligible for loan forbearance. More so, you will not qualify for loan deferment and student loan forgiveness. At this stage, you cannot change your loan repayment plans.
- You will no longer enjoy financial assistance from lenders.
- You will have a negative record in the credit bureaus, and your credit score can affect your reputation.
- Your lenders may decide to sue you to court. These legal actions come at a cost, and you have to spend additional money to achieve this.
- The financial institution you borrowed from can decide to seize your valuable property.
- You will lose your social security, and the federal government can deduct up to 15% of your salary for the debt repayment.
On the whole, student loans are easy to get, and they must repay them as quickly as possible. Delay or refusal to pay can be very detrimental. It will affect your reputation and your job.
Read More: Top 10 Ways to Pay off Student Loan Quickly