The Consequences of Defaulting on a Federal Stafford Loan

The consequences of defaulting on a Federal Stafford Loan are on many former students’ minds these days as the economy and unemployment rate continue to worsen. Some people who have borrowed money from the government to attend school are likely starting to default and need to know what their options are. The truth is that defaulting on federal student loans is a very bad thing for your financial standing and credit report. Here is a breakdown of what being in default on your Federal Stafford Loan means, what can happen and how to avoid defaulting in the first place.

Being in Default

If you are 270 or more days past due on your Federal Stafford Loan repayments and have not made alternative payment arrangements with the institution, you are in default. Defaults on other types of loans and credit obligations can remain on your credit report for only seven to ten years after you have repaid the debt, but when you default on a student loan repayment, this remains permanently on your report. Federal student loans are also not able to be discharged in a claim of bankruptcy, so it is best to make a plan to pay them back and avoid going into default in the first place.

What Happens When You Default?

When you default on your Federal Stafford Loan, this problem is not something you can just walk away from and forget about. The effects of having student loans in default on your credit report may include these: 

  • Your credit score will seriously suffer, even beyond seven years. It will be next to impossible to get an auto loan or a mortgage. In the event you do get approved for a loan or a credit card after defaulting on your student loan, the interest rate will be much higher than average.
  • You can be turned down for employment and renting a residence. Potential employers and landlords will look at your credit to determine your credit worthiness and if you are a responsible person. If you show student loans in default, it is possible they will think of you as irresponsible and unable to handle a particular job or pay rent.
  • You will be called daily by collection agencies once your account has been turned over. You will get phone calls at home; at work; and even at the homes of other people, such as relatives, whom the collection agency can associate with you.
  • When it comes time to get a tax refund or stimulus check, the government will take it to pay back your student loans. Your employment wages can be garnished as well.

Avoid Defaulting on Your Federal Stafford Loan

If you are struggling with paying your bills and other obligations and you are faced with the real possibility of not being able to make payments on your student loans, you must first call your lender. There are options that you can exercise under categories known as Deferment or Forbearance. If you do not qualify for these terms, you should be able to make alternative payment arrangements directly with your lender. As long as your lender knows you still have the intention to pay back your student loans, it is possible the lender will work with you so that you do not go into default.


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