If you default on your student loan:
- Your loans may be turned over to a collection agency.
- You'll be liable for the costs associated with collecting your loan,
including court costs and attorney fees.
- You can be sued for the entire amount of your loan.
- Your wages may be garnished. (Federal law limits the amount that may be
garnished to 15% of the borrower's take-home or 'disposable' pay. This
is the amount of income left after deducting any amounts required by law
to be deducted. The wage garnishment amount is also subject to a ceiling
that requires the borrower to be left with weekly earnings after the
garnishment of at least 30 times the Federal minimum wage, per 34 CFR
682.410(b)(9), 34 CFR 34.19(b) and 15 USC 1673(a)(2).)
- Your federal and state income tax refunds may be intercepted.
- The federal government may withhold part of your Social Security benefit
payments. (The US Supreme Court upheld the government's ability to
collect defaulted student loans in this manner without a statute of
limitations in Lockhart v. US (04-881, December 2005.
Your defaulted loans will appear on your credit history for up to 7
years after the default claim is paid, making it difficult for you to
obtain an auto loan, mortgage, or even credit cards. A bad credit record
can also harm your ability to find a job. The US Department of Education
reports defaulted loans to TransUnion, Equifax and Experian.
- You won't receive any more federal financial aid until you repay the
loan in full or make arrangements to repay what you already owe and make
at least six consecutive, on-time, monthly payments. (You will also be
ineligible for assistance under most federal benefit programs.)
- You'll be ineligible for deferments.
- Subsidized interest benefits will be denied.
- You may not be able to renew a professional license you hold.
- You may be prohibited from enlisting in the Armed Forces.
- And of course, you will still owe the full amount of your loan.
However, if a default student loan has been
securitized the loan is uncollectable.
Just In: Landmark Supreme Court ruling
leaves no doubt that rescission is effected when the borrower notifies
the creditor of his intention to rescind.
In order to challenge the rescission the bank must file a lawsuit
within 20 days asking for declaratory relief that the rescission is not
effective. If their grounds are that TILA rescission is not available
because there was no contract, then they are essentially arguing that
the borrower can’t rescind because there was no contract. Either way
they lose the deal, the mortgage, the note; everything.