Missing a student loan payment is the start of a very slippery slope; one with financial repercussions that can last for several years, if not longer. Defaulting on a student loan is what happens when you miss several payments—about 9 months’ worth if they are federal student loans. Once your student loans reach this defaulted status, what happens?

Possible penalties of federal student loan default:

Wage Garnishments & Income Tax Offsets

Once your loans have officially been defaulted, the loan servicer is eligible to request a wage garnishment order against you. Wage garnishments can affect more than just your paycheck from your employer—they can also be used to recover funds from other sources of income such as Social Security checks. In addition, come tax season, don’t be excited about a potential refund. If your federal student loans are defaulted, then your income tax return can be offset. This means anything you were expecting as a refund will be confiscated and applied towards your outstanding federal student loan balances.

Your Credit Score Is Impacted

Having a good credit history is important to financial health and success. Late payments reflect poorly on your credit history, but a defaulted loan status can impact your credit score to a larger degree. Defaulting on a loan shows other potential lenders (like those needed for purchasing a car, home, or new student loan for continuing education) that you may not repay what they let you borrow. This can make trying to get a loan nearly impossible or at terms that make it more expensive for you in the long run. Other places that may check your credit, like rental companies and cell phone carriers, may use this information to deny your application for a rental or even a cell phone plan.

You’ll Owe Even MORE Money

Just because your loan status is defaulted doesn’t mean your trouble stops there. In fact, late fees will continue to be applied to your account every month you continue to miss payments, and interest will continue to accrue. On top of these costs, you may also be billed for the collection efforts against you. Collection costs can total up to 25% of your loan balance.

Continuing Education Will Be Impacted

If you are considering going back to school—whether to further your education or as a means to post-pone your payments (deferment)—it may be harder than you think. If you are currently defaulted on your student loans, you may be denied financial aid or loan assistance. In addition, the school you graduated from with your degree may be able to withhold your academic transcript until you repay your debt (or, at least, are no longer in a defaulted status). This means potential employers may not be able to verify your degree.

Suspended Professional License

This varies from state to state, but if you work in a certain field (like medicine or education), the state may suspend or even revoke your professional license. Your driver’s license can also be up for suspension as well if your loans are defaulted.

Be Arrested and Jailed

You cannot be arrested solely for having defaulted on your student loan; your loan servicer will first have to sue you and win a court order for you to repay your student loans. If you fail to comply with this court order—by not making the court ordered payments—you can be arrested for not complying with a court order. This is called being “in contempt”. In many states, this is a misdemeanor and the term of your sentence is often contingent upon making your missed court ordered payments. If you cannot pay your missed court ordered payments, you may remain jailed until able to do so (or someone else does on your behalf). Never ignore a notice to appear in court—a court summons—as this may be an indication that your loan servicer is taking this route.

The penalties for student loan default are serious and can have lasting effects on your finances and your ability to provide for yourself. It is important to take action when you have defaulted on your loans. While making payments may be difficult there are things you can do to resolve your outstanding balance and re-enter a more affordable repayment agreement. Contact us if you are close to defaulting on your student loans or have already reached this point.