Federal student loan creates a financial storm if you default on it
Students go through a nightmarish experience when they default on any form of educational loans. The plight of the students becomes worse when they default on the federal student loans. Department of Education is ruthless. They take cold and calculative steps to recover the money from the student loan defaulters – this is a hard fact of the country.
Each year, thousands of students or parents take out federal student loans in the country. The current figure states that nearly, 36 million people have taken out federal student loans. However, an increasing number of borrowers are finding it difficult to cope up with the loan payments. As such, the student default rates have increased in the last few years.
Why are people having trouble in paying student loans?
If you think for 2 minutes, then the possible reasons behind the rise in the student loan defaults will be clear to you. If you're still not able to decipher the key reasons, then go through the following points:
- The poor condition of the job market
- The poor economic state of the country
- The incapability of the borrowers to dismiss student loans through bankruptcy
What can possibly occur if you don't pay federal student loan?The life in the 21st century is fast, hectic, hard and merciless. Modern man has to put in a lot of effort to make the life bearable. However, when this modern man, defaults on the federal student loans, life just becomes hell. Go through the following lines if you really want to know why life becomes unbearable for the federal student loan defaulters.
1. Government can garnish your paycheck with default judgment.
Unlike the private lenders, government can deduct up to a certain percentage from your paycheck as a punishment for non-payments. They don't need the approval of the court to take this step. In fact, they can garnish as much as 15% of your paycheck to recover the money.
You are not completely defenseless. You can challenge and stop the garnishment by taking proper steps at the right time. Your wages will not be garnished all of a sudden. You'll be given a prior notification about it. It will be better if you take steps during that time.
2. You may end up getting sued for the loans.Federal government will not let you live peacefully if they see that payments are not being made on the loans for several months. Just like the private lenders, they are equally concerned about their money. They can go to any length to get back their money. So, be prepared to get sued at any point of time. Keep it in mind that there is no Statute of Limitations period on the student loans. This implies that you can be taken to court after several days of loan default.
3. You may lose your Social Security benefits and tax refunds.Your Social Security checks and tax refunds are not safe either. The federal government can snatch the money if the loans remain unpaid. So, don't fret if you see that your tax refunds have been taken away by the government. It is perfectly legal.
4. You may have to pay gigantic amount on the penalties.
High penalties will be imposed upon you in the even of loan default. The penalty amount can be as high as $50,000. This will make it doubly difficult to pay off the loan.
What can you do if you are struggling to make payments?
The consequences of defaulting on the federal student loans have been already stated above. If you're struggling to make payments, then it is better to take the following steps from beforehand:
- Read and keep the letters sent by the Department of Education
- Contact them and learn about the repayment options
- Note the name of the person with whom you’ve interacted
- Note your file number, date and time
- Send the requisite letters via certified mail
Finally, remember that a high college degree is not the ticket to a grand job. Millions of graduates are yet to get good jobs. So, choose your subjects wisely. In addition, the cost of the education should be taken into consideration before submitting the loan application.