Defaulting on a student loan can lead to significant financial repercussions. However, misconceptions about these consequences are common. This article clarifies what happens when you default on a student loan by addressing the question: “Which of the following is not true if you default on a student loan?”
Understanding Student Loan Default
A student loan enters default after a specified period of missed payments—typically 270 days (about nine months) for federal loans and often shorter for private loans. Defaulting triggers several consequences, but not all commonly believed outcomes are accurate.
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Common Consequences of Student Loan Default
- Immediate Full Balance Due: Upon default, the entire loan balance, including accrued interest, may become immediately due—a process known as “acceleration.”
- Credit Score Impact: Defaulting negatively affects your credit score, making future borrowing more difficult and expensive.
- Wage Garnishment and Benefit Offsets: The government can garnish wages and withhold tax refunds or Social Security benefits to recover defaulted federal loans.
- Loss of Eligibility for Additional Aid: Defaulting can disqualify you from receiving further federal student aid until the default is resolved.
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Debunking a Common Myth
Myth: Defaulting on a student loan leads to immediate imprisonment.
Fact: Defaulting on a student loan does not result in imprisonment. While serious financial consequences exist, incarceration is not among them. However, ignoring court orders related to loan repayment can lead to legal issues.
Mitigating the Impact of Default
If you’re facing default, options like loan rehabilitation or consolidation can help restore your loans to good standing. Engaging proactively with your loan servicer is crucial to explore these solutions.
FAQ
- What is student loan default? Default occurs when you fail to make scheduled loan payments for an extended period, typically 270 days for federal loans.
- How does defaulting affect my credit score? Defaulting can significantly lower your credit score, impacting your ability to secure future credit.
- Can my wages be garnished for a defaulted loan? Yes, for federal loans, the government can garnish wages without a court order to recover the debt.
- Am I eligible for more student aid if I’m in default? No, being in default disqualifies you from receiving additional federal student aid until the default is resolved.
- Can I be arrested for not paying my student loans? No, you cannot be arrested solely for defaulting on student loans. However, ignoring related legal proceedings can lead to legal consequences.
