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One Thing You Must Not Ignore: Replaying Your Student Loans

If you fail to pay student loans, your credit score drops, and taking out future credit is difficult and you may be sued by lenders. The consequences of non-repaying your student loans are painful, so pay your student loans on time or seek help if experiencing financial difficulty. Not paying your student loans will lead to late fees, lowered credit score, income garnishment and worse. Discuss with your lender about payment alternatives if struggling to repay. Whether it’s your student loan payments or other debts, if you default in your repayments every month, your finances could be hit from multiple angles as under:

Short-term Consequences:

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Even a day’s delay in student loan repayment, you’re considered delinquent. If missing a few payments, consequences such as: Late fees (a late payment after due date results in a late payment fee, varying by lender, and either flat late fees or fees representing a percentage of your missed payment, is common. Withheld tax refund (if falling behind on federal student loans, the government may withhold refunds until your payments are regularised. Wage garnishment (if you are a few months late on student loans repayments, your lender may garnish your wages, even up to 25 % of disposable income, until you pay back a portion of loans and are back in good standing.

Long-term Consequences

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Loans will be considered delinquent even if you have one missed payment, however your lender or loan provider may not report this as a late payment to the major credit bureaus until 90-day default occurs. The longer you default (after multiple months of missed payments), the specific timing and consequences of default differs from lender to lender.

  • In severe cases, the entire student loan balance immediately becomes due.
  • Lost eligibility for any future aid (if currently in default, you lose out on future student aid, which includes grants, scholarships, federal student loans, other loans or securing a credit card).
  • Credit score drop (the longer you go without repaying student loans, the more your credit score tanks).
  • Porobable lawsuits (your lender could further sell your loan to some debt collection agency, which will then call and send letters to you to collect this debt.
  • To garnish yourwages, lenders must go through court but you may get sued if fail to repay dues).

Bankruptcy and student loans discharge

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The U.S. Bankruptcy Code allows student loans to be discharged if borrowers demonstrate it causes undue hardship. Proving undue hardship has been difficult as borrowers must meet guidelines of the Brunner test: You prove that if forced to repay loan, you cannot maintain a minimal living standard. You will demonstrate that hardship will keep continuing during your debt repayment period. You have made efforts in good faith to repay loan before filing for bankruptcy.  However, proving that repaying your student loans will impose an undue hardship on you, is difficult.

The bottom line

Defaulting on student loans cause catastrophic results for finances, your future credit prospects, so stay current on loans. If struggling financially, look for federal forgiveness or refund options, seek a repayment plan which works for you or will refinance your loans. While negative information about student loan disappears from credit reports after seven years, student loans remain on your credit reports and in your life, until repayment. To enable student debt to vanish, apply for forgiveness or take advantage of repayment options for payment of remaining balances.

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