Student loans: here's what to expect if you fail to make a payment

Students around the country are graduating with an average of $37,172 in student loan debt. As that number rises, so does default. What happens if you default?

Unlike other debts, student loans cannot be discharged during bankruptcy, so failing to make payments is to be taken seriously. Around 44 million students have a loan and a whopping 11 percent have a loan in default.

Student loans cannot be discharged during bankruptcy

When is default and when does it happen?

The Federal Student Aid Office defines default as a failure to make a payment for more than 270 days (9 months).

However, for private student loans, this period isn’t so long: they usually consider default if you’ve missed payments for 3 months. It is worth noticing that there are some lenders that will consider default if you miss just one single payment.

Another way your loan can be considered in default is if you or your co-signer dies or files for bankruptcy, no matter whether you are making timely payments or not.

'I couldn't pay! Am I in trouble?'

Student loans are a particularly difficult debt. This is because there are very few options to free you from paying a student loan if you fall on hard times. While federally subsidized loans offer options for forbearance or deferment, private lenders only permit a 12-month spare over the life of a loan.

What happens if you don't pay?

If you struggle to make payments, even after a deferment, you are in for some financial consequences. For starters, student loan collection agencies can garnish your wages without a lawsuit. And not only the amount due, but also penalties and other fees that can increase your outstanding debt.

It is important to see which option you have available before being in default, because once you do they begin to narrow. For example, if you default you are ineligible for repayment assistance programs, so you can no longer apply for forbearance or deferment. 

In 22 states, if you default on your student loan you might have your professional license or your driver's license suspended. And of course, not paying a student loan will have dramatic consequences on your credit to the point that if you want to get a cellphone plan or qualify for a mortgage, it will be more difficult and expensive.

It is important that you contact your lender as soon as your payment trouble begins. Find out your assistance options available before it gets worse!

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