8 Ways Defaulting on Student Loan Debt Can Make Life Miserable

1. Your credit score takes a hit

Payment history comprises around 35% of your credit score, the three-digit number that lenders and credit card issuers rely on to determine whether you’re creditworthy.

Defaulting on a student loan can affect your credit score negatively, causing lenders and credit card issuers to deny loan and credit card applications.

2. You lose eligibility for certain repayment plans

A forbearance allows the borrower to stop making payments temporarily while interest continues to accrue. ^[1] With a deferment, you may not be responsible for paying interest that accrues on the loan for the deferment period.

Default on a federal student loan, however, and you will no longer have access to forbearance and deferment repayment options offered by the U.S. Department of Education.

3. The entire loan balance becomes due

When your federal student loan goes into default, the entire balance is accelerated, becoming due immediately, according to the U.S. Department of Education. ^[2] If this happens, you need to act fast.

Contact the loan holder right away to ask about a repayment plan that will allow you to resolve the default before its negative consequences ripple through your life.

4. You can’t get more student loans while in default

Want to go back to school so you can get a better job and back your student loans? If your loan is in default, you’ll pay tuition without federal help.

When you default on a federal student loan, you lose eligibility for additional federal student aid. ^[3] If you contact the lender and set up a repayment plan, you may eventually be able to get student loans again. Until then, no more federal student loans for you.

5. Your student loan debt grows larger

While your student loan is in default, capitalized interest accrues and gets added into the loan principal. If you stop paying for years, your student loan amount can double or triple, morphing into a seemingly insurmountable debt.

If your loan is in default, contact the loan holder about loan rehabilitation. For example, to get your William D. Ford Federal Direct Loan or Federal Family Education Loan out of default, you may be able to make nine affordable monthly payments during a period of 10 consecutive months. ^[4]

6. The IRS can seize your tax refunds

Once your loan is in default, say goodbye to tax refunds you could other use for vacations, a new car or paying bills. That’s because the IRS will likely seize your tax refund, thanks to a government procedure known as a “treasury offset.”

With treasury offset, the amount of your federal tax refund is withheld and applied toward repayment of the defaulted loan.

Check out Debt.com's in-depth report, Federal Student Loan Relief: Why Most Borrowers Overpay.

7. Your wages will be garnished

Defaulting on your federal student loan doesn’t give you a pass on loan repayment, since the government isn’t big on forgiving people who default on student loans. And what better place to look than your employer?

The U.S. Department of Education may garnish your wages, requiring your employer to withhold a portion of your paycheck to send to the loan holder toward repayment.

8. Your social security checks shrink

If you think being old and retired will quench the government’s bloodthirst for repayment of your federal student loans, get ready to fork over a percentage of your monthly social security check.

The government may be able to take around 15% from your monthly benefit payments if your student loan is still in default when you begin drawing social security benefits. ^[5]

This article by Deb Hipp was originally published on Debt.com.