Updated: Jul 28
You are screwed! Just kidding.
Student loan debt is a significant issue in the United States, with the total amount of student loan debt surpassing $1.7 trillion as of 2021. Many borrowers struggle to keep up with their monthly payments, and some wonder what will happen if they are never able to pay off their student loans.
Unfortunately, defaulting on student loans can have serious consequences. Here are some potential outcomes:
Wage garnishment: If you default on your federal student loans, the government may garnish your wages, meaning that they can take a portion of your paycheck to repay your debt. According to the Department of Education, the average wage garnishment is 15% of disposable income.
Tax refund offset: The government may also take your tax refund to repay your student loan debt if you default on your federal loans. In 2020, the government collected $2.9 billion from tax refund offsets.
Negative impact on credit score: Defaulting on student loans can have a significant negative impact on your credit score, making it harder to obtain credit in the future. According to the Federal Reserve Bank of New York, student loan debt is the second-largest source of household debt in the United States, behind only mortgage debt.
Legal action: The government may take legal action against borrowers who default on their student loans. This can include lawsuits, wage garnishment orders, and even the seizure of assets.
Limited options for loan forgiveness: If you default on your student loans, you may become ineligible for certain loan forgiveness programs, such as the Public Service Loan Forgiveness program or the Teacher Loan Forgiveness program.
It is important to note that there are options for borrowers who are struggling to repay their student loans. Income-driven repayment plans can help borrowers reduce their monthly payments based on their income and family size. Additionally, borrowers who work in certain public service fields may be eligible for loan forgiveness through the Public Service Loan Forgiveness program.
If you are struggling to repay your student loans, it is essential to reach out to your loan servicer to discuss your options. Ignoring your student loan debt will only make the situation worse. With proper communication and planning, it is possible to manage your student loan debt and avoid default.
Defaulting on student loans can have serious consequences, including wage garnishment, tax refund offset, negative impact on credit score, legal action, and limited options for loan forgiveness. However, there are options for borrowers who are struggling to repay their loans, and it is important to communicate with your loan servicer to explore your options.