How to Avoid the Painful Consequences of Not Paying Your Student Loans

04/17/2015 12:28 pm ET | Updated Jun 10, 2015

What happens if you don't pay your student loans?

Last year, over 11.3% of all student loans were considered delinquent. This statistic has doubled from just 10 years ago, while the total outstanding national student debt has also risen to over one trillion dollars. More students than ever are graduating with thousands of dollars in debt, with no idea how to manage their loans or how to pay them off.

You may have heard horror stories of what happens if people fall behind on their loans. While you may dismiss some of them as unrealistic, the truth is that defaulting on loans is a serious mistake that can have negative consequences for the rest of your life. To expose just how severe this problem is, we have compiled a list to show you what can happen if you don't pay your student loans and provided solutions that can help bring relief:

The debt only gets worse

Some students ignore their debt in the hope that it will somehow just go away. You don't need us to tell you that it is just wishful thinking.

Meanwhile, interest continues to accrue on the debt amount. Sometimes, the interest accrued can be so large it almost doubles your debt amount. If your loan is sent to a collector, you are responsible for the collection fees and costs. These get added to your loan amount and can exacerbate the situation further.

Solution: If your wages are low, consider income-driven repayment plans offered on federal loans. If your interest rates are too high, consider refinancing them to lower your rates under new terms and repayment options - see how Credible can help.

Your credit score suffers

If you are late making your student loan payments for more than 90 days, you are considered delinquent. This goes on your credit report almost immediately, and you will most probably be reported to the credit bureaus. Even if you somehow manage to pay off the amount quickly, the default may be noted on your credit report for up to 7 years.

Solution: Look into one of the many credit-monitoring services available that can help you understand your credit score and make sure that you are staying current on all of your monthly payments.

Your wages might be garnished

Government loans are usually a student's first choice when it comes to taking out a student loan. They often have lower interest rates than private lenders and are usually more convenient for students.

If you default on your federal student loans, the Department of Education can begin garnishing your wages, The DoE can take part of your wages before you even get paid. All you get is a 30 days' notice before and up to 15% of your paycheck will be withheld each pay period and used to pay off your loan balance.

Solution: Before the government starts interfering with your paychecks, contact your loan servicer directly to discuss repayment options. Take care of the situation before it goes to far.

You might not get your tax refund

As mentioned earlier, the government is serious about getting its money back. If you are eligible for a tax refund, the government has right to apply the refund to your student loan. This process is usually automatic and very difficult to maneuver.

Solution: Take some time to figure out your monthly expenses and look to your tax refund as a way to get ahead. There is no prepayment penalty for student loans, so putting your refund towards your loans on your terms might be a wise investment anyway.

You may be sued

Private lenders may not be able to take your tax refund or your wages, but they have other means of making you pay. If you default on your private student loans, there is a possibility that the lender will sue you. As if the loan amount wasn't bad enough, you will now have to pay an attorney's fees to defend you against the lawsuit.

Solution: If you are having trouble repaying your private loans, consider refinancing them with a credit worthy cosigner to help reduce your monthly payments or consider switching to a variable rate in the short term as the rates can be as low as 1.94%.

Life will change for the worse

Imagine being hounded by collector's calls every day or so. If you default on your student loans and it is recorded in your credit report, you may never be able to take out a mortgage or an auto loan. Even everyday things like getting a credit card, a cellphone plan, or renting a car can become more challenging. Every time you apply for a job or rent an apartment that requires a background check and your potential employer will know that you are in debt.

Solution: Be smart and stay proactive on your student loan payments.  

To learn more about student loan refinancing and to receive student loan refinancing offers from many lenders after filling out one form, visit Credible.

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