Effects of Not Paying Federal Student Loans

It's important to pay back your student loan according to its terms.
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Many students need federal student loans to afford a college education. Many also figure they'll have a job after graduation so they can pay off the loan when it becomes due. But life doesn't always work out as neatly as planned. Some people don't land a high enough paying job to pay their student loan debt. If you're thinking about taking out a federal student loan to get a college or an advanced degree, or if you already have student loan debt that you need to start paying back soon, you should know the effects of not paying back the loan.

Lowers Your Credit Score

When you're one day late making your federal student loan payment, your lender considers you delinquent. If you're delinquent for 90 days, your lender will report the delinquency to the three major credit bureaus, according to the U.S. Department of Education. Your credit score will go down as a result, which makes it more difficult for you to get future loans of any kind.

You Might Have to Pay High Fees

If you don't make any loan payments for 270 days, or 330 days with a Federal Family Education Loan, you're in default. When that happens, you owe the loan in its entirety and any interest, late fees and fees related to the collection process. Interest and penalties could double or triple the amount of the original loan. Sandy Baum of the Urban Institute said on NPR News that a $10,000 student loan could balloon to $20,000 or $30,000 if the borrower keeps piling up penalties and interest.

Income Garnishment

Because the loan is a federal one, the government can take your federal and state tax refunds to collect its money. It can also take 15 percent of your Social Security and Social Security Disability benefits. Wage garnishment is another method the government can use to get its money, without taking you to court first. It can't take more than 15 percent of your net income, however.

You Can Be Sued

Because the government has many options available to get its money, it usually doesn't need to sue, but it can. In this case, the borrower must go to court. If you owe the money, you will probably get a judgment against you. If that happens, you might not be able to buy a home until you pay the judgment.

Extreme Cases

Matt Taibbi, a reporter with "Rolling Stone" magazine, found that some people with heavy student loan debt developed severe mental or physical problems due to the stress of having loans hanging over their heads. In addition, people who owe student loan money can be barred from the military or lose a professional license, Taibbi's article said.

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