Everyone has the same right to education. The problem is that Education, especially in the United States, doesn’t come cheap. You either study hard enough to get a scholarship, or you bury yourself in student loans.
On average, around 20% of Americans have a student loan on their shoulders, and the sad part is that not all of them are successfully paid. The interest grows bigger and bigger, and some even default eventually. Here is what happens if you end up defaulting on a student loan.
1. Lenders Can Start Taking Money from You
If you take out a federal student loan and fail to make your payments, ending up in default, then the lender can start taking other money from you. For instance, they can grab control of your wages and start withholding tax refunds. If you receive any other payment types from the government, such as a social security check, they can withhold that as well.
If you get a private student loan, they won’t be able to cash in your social security payments or tax refunds. However, they can still take your case to court. You may not go to jail, but if the judge rules in their favor, they may even tap into your paychecks and bank accounts to recover what they are owed.
2. You May Affect Your Education
If you defaulted on your student loan, lenders won’t trust you with another loan again. As far as they are concerned, you’re a risk – so, if you want to take additional classes or need extra money for next year’s tuition, you may not get it. Plus, if you are a graduate, the school can even decide to keep your academic transcript, not giving it to you until you pay enough.
3. Your Credit Score Can Be Affected
It may seem like a little thing, but if you default on your student loans, your credit score can take a great hit. You’ll have trouble borrowing money for a car or a house, investing – and simply put, any credibility you may have will be lost.
Let’s say that you want to invest and talk with various prospects for FX brokers for that. There is a good chance that they will also look at your credit score, to see if you are able to repay the debt. If they see that you can’t even repay your student loans, then they may have second thoughts about allowing you to invest.
4. You’ll Owe Even More Money
The more time you allow to pass without paying your debt, the more interest will build. Eventually, you may end up having to pay more in interest than on the actual amount of money that you had to borrow. Indeed, on average, the interest for personal student loans can grow up to 25% for most lenders – but the more you leave it to build, the more you will have to pay up in the long run.
The Bottom Line
Debt can sometimes be difficult to manage. However, if you don’t want to go into default, you should pay your debt on time. Lenders won’t forget that they gave you money, no matter how much time passes.