Stagnant wages, fewer job prospects and crushing debt could cause more graduates to default on their federal student loans in the future. Although the services of bad credit loan lenders should not be utilized every time a payment is due, if you hit a financial rough patch, a cash loan could get you out of a tight situation.
A majority of federal loans are considered in default after nine consecutive months of missed payments.
According to Money Crashers, defaulting on your federal student loans can make your life very difficult. Specifically, this negative marking on your record could hinder your financial stability for quite some time. But what exactly are the consequences?
The Government Can Dock Your Pay
Even if you fail to make payments on your federal loans, this financial responsibility won’t just disappear. According to the National Consumer Law Center, the government or loan guaranty company can actually dip into your income.
Specifically, without a court order, these groups can claim up to 15 percent of your disposable pay to put toward your student debt payments. This unexpected financial drain could seriously disrupt someone’s financial well-being, especially if they are already having trouble making ends meet.
Social Security, Disability And Tax Refunds
Like your paycheck, these government perks could also be affected if you default on your student loans. While this won’t have the same immediate implications as docking your paycheck, the long-term impact could be devastating.
Once you default of your student debt, the entire balance is due. When this occurs, this total sum starts to accumulate interest. Meanwhile, extra interest won’t be your only concern. In addition, there could be some hefty flat-rate penalties that are added the day the status of the debt changes.
You Could Go To Court
Federal loan default is very serious to the government. Because of this, it may not hesitate to take you to court to settle the claim. However, this may not be an immediate repercussion. Since a higher rate of borrowers are currently defaulting, this has created a significant backlog. But Uncle Sam could come knocking on your door years from now.