Consequences of Default

The consequences, which can be severe, include the following:

  • The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called "acceleration").

  • You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.

  • You will lose eligibility for additional credit at a later time.

  • The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to establish additional credit.

  • Your tax refunds and federal benefit payments may be withheld and applied towards repayment of your defaulted loan (this is called “Treasury offset”).

  • Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder l to repay your defaulted loan.

  • Your loan holder can take you to court.

  • You may not be able to purchase or sell assets such as real estate.

  • You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.

  • It may take years to reestablish a good credit record.

  • This establishment may restrict benefits that you had access to in the past.

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