Every year, students around the nation enter college and prepare themselves for a world of new experiences. Unfortunately, one of these experiences includes taking on a large amount of debt. Students are burdened with an average around $30,000 in student loans before they even enter the workforce. Students who fail to manage their student debt well are sometimes unaware of the terrible consequences that await them.
At Credible, we help graduates responsibly manage their student debt every day. With this in mind, we have compiled a list of five of the worst consequences of not managing your student debt well to motivate you to start paying right away.
You may lose your driver’s license
Sometimes more than just your financial security is at stake. Many students are unaware of the fact that some states have laws punishing those who default on their student loans. Currently, there are 22 states with laws in the books that allow for driver’s license suspensions for graduates who default on their student loans. Legislatures in Montana and Iowa are considering bills that may reverse these laws. But if you’re in one of the other 20 states that may suspend your license, you may want to consider taking your student loans more seriously.
Your credit may be severely damaged in the long term
Everyone knows that a late payment on a credit card may affect your credit score and student loans are no different. Although one late payment may not hurt your credit score, it is still reported and will remain on your credit history for seven years or even longer. It’s not worth the risk to miss even one payment. Defaulting on your student loans will damage your credit score and may be reported to collectors. All of these factors will lead to financial difficulty in the future.
You may be hurting the person who trusted you enough to cosign
If your loans are cosigned and you default, you’re opening up your cosigner to all kinds of problems. Your cosigner could be held responsible for paying the loan if you fail to do so. Additionally, their credit score could be damaged and it may take many years to remove them from the loan.
Interest builds up and your total repayment increases
Understanding the fine print of your student loans could save you thousands of dollars. Your interest rate and loan term dictates your total repayment. If you stay aware of your current market rates you may be able to reduce your interest rate to as low as 1.92 percent. This could potentially save you thousands of dollars in interest and put your money back in your pockets instead of down the drain.
Your wages can be garnished and your tax refunds can be taken
Wages can be garnished after the loan has defaulted. For Federal student loans, this usually happens after you fail to make a payment for 270 days. Once the loan is defaulted, your loan provider can legally come to an agreement with your employer and start garnishing your wages (usually 15 percent of your paycheck). It is also possible for the Department of Education to intercept your tax refund once your loan has defaulted. Further, it is even possible to be sued for not paying your student debt and if you lose, it could put your income and assets at risk.
To learn more about your federal loan options visit studentaid.ed.gov or Credible to see how you can adjust the repayment on your current loans.