1) The Loan Accelerates.

This means that the entire balance of the loan becomes due. You cannot just add up the amount you fell behind and ask that wealthy relative to send a check to your lender. They’ll send it back and saying “thanks, but No thanks”. They can only accept the arrears if they are attached to a pay plan which is agreed to by the lender.

2) Lasting Credit Damage.

Defaulting on a student loan will show up as a negative entry on your credit report and reduce your score. The effect will sting for many years as the default remains on the report even if you emerge from default later. In today’s economy lender’s are requiring higher scores to approve loans for mortgages. Don’t be denied your dream home years from now because you let your student loan default.

3) Walloping fees and costs.

Ugh. The fine print of student loans can contain some harsh penalties for default. Your total balance could soar overnight to 20% over the original amount! One day you could owe the original $50,000, and the next day you owe $62,500! When they send your loan file to a collection agency, the cost to collect the debt is passed onto your balance. Sounds pretty scary. We agree.

4) Aggressive Collection Action.

The collection industry bids each year for contracts with the Department of Education and other lenders of student loans. They’ll aggressively pursue you by phone and mail. They might start calling you at work, since they can do that until you ask them not to.

5) Lose Your Professional License or Credential.

Many professions require a license to practice. Found in medical, legal, therapists or other credentials where the public places trust in an individual. Depending on your occupation and area of expertise, if you default on a student loan you could be stripped of that license to perform your work.

6) A Shocking Trim Of Your Take Home Pay.

Imagine looking at your paycheck, and finding that your net pay was only 75% of what you normally see on the net pay line. A defaulted student loan can result in a garnishment of your wages of up to 15% of your disposable income. But if you have more than one loan guaranteed by the federal government, it could go up to 25%. Although you would be notified 30 days before garnishment, you would not know if you shoved those mailed notices in a drawer.