What happens if you default on a private student loan? Have you ever thought about it? Well if you are a private student loan borrower, then you should think about it. And just maybe if you have any plans of defaulting on your loans, then you will have a rethink.
What Happens If You Default On a Private Student Loan
Private student loans are different from federal student loans. Although they both have the same aim of providing students with relief in their educational pursuits, they both work differently. For instance, while federal student loan borrowers get to qualify for forgiveness and other programs they help with their loans, the options and opportunities for private student loan borrowers are limited in so many ways. They have so many differences, but when it comes to defaulting borrowers, I think both lenders work very much similarly.
With all of that being said, when you default on a private student loan, the lender or loan servicer in question may get to take legal action against you. And the legal action taken against you may include wage garnishment or even the seizure of your tax refunds as well as damage to your credit report which could ultimately make it very difficult for you to qualify for future loans. It is that simple. You should also know that defaulting on your loans will also lead to a higher interest rate as well as increased difficulty in getting back on track financially.
When you default on your student loan, there are immediate as well as long-term consequences associated with it and they can range from the effect on your credit score to even legal action as stated earlier. With that being said, let’s take a look at the consequences of defaulting on your private student loans.
Immediate or Short Term Consequences
The immediate consequences of defaulting on your private student loans include;
- Legal action from your lender – your lender may just decide to take legal action against you in the event that you default and the legal action may be in the form of wage garnishment or seizure of tax refunds.
- Damage to your credit score – defaulting as you should know will damage your credit score which in turn could make it very hard to qualify for loans in the future as well as other forms of credit.
- Higher interest rates – one thing you should know is that defaulting on your loan could lead to an increase in the interest rate of the loan thus making it even more expensive to pay back over time.
- Difficulty in getting back on track financially – after you have defaulted on your loan, it can be very hard to financially get back on track.
- Collection calls and letters – you may just get to receive many letters as well as calls from collection officers that will then create pressure for you to make payments.
- Penalties – lenders will get to charge late fees as well as other penalties on your next due payments.
Long Term Consequences
The long-term consequences of defaulting on your student loan include;
- Deferred wages – defaulting on your student loan could end up in wages being deferred thus making it very hard for you to cover living expenses or even pay off other debts.
- Difficulty in qualifying for additional loans – you should know that when you default on your loan, it will get to damage your credit score which can make it very hard to qualify for future loans.
- Lower credit limit – it may be that your credit limit may just be reduced thus making it harder to borrow money in the future or even get approved for bigger purchases.
- Difficulty in finding a job – defaulting on a student loan could end up affecting your ability to find employment as many employers in the market may see it as a negative and bad mark on your credit report.
That’s it. with everything that has been said thus far, it is very important to not default on your private student loans as the consequences can be very severe and long-lasting.
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