Are you wondering what happens when student loans default? There are big consequences. Student loan default can lead to a drop in your credit score, wage garnishment, and a lien placed on your home and bank account.
Student loans go into default when you miss too many payments. What happens next depends on the type of student loan debt you have — federal or private.
Federal student loans default after you miss payments for more than 270 days (nine months) and immediately put you at risk of action. The US Department of Education has strong collection powers that allow it to take money from you without a court order — immediately putting your paycheck, Social Security Benefit payments, and tax refund at risk of being garnished.
A private loan can default after only one missed payment, but private lenders don’t have the same options. If you fall behind on private student loans, the loan holder has to wait until it sues you and gets a judgment before it can garnish your wages or seize money in your bank account. Until then, the only thing it can do is call you demanding payment and report negative information to the credit bureaus.
Ahead, learn what happens if you default on student loans.