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What if I Default on my Student Loan?

For a recently graduated student who cannot find a job in today’s economy and is struggling to pay for the basic necessities of life, or for the professional who loses his job and remains unemployed until well after unemployment compensation runs out, student loans may seem trivial, but defaulting on a student loan can be problematic. Here’s what can happen if you can’t pay your student loan bills and you choose to default on the loan.

Tax Refund Offset

The federal government can keep your tax refund every year until the loan is repaid. This is called a tax refund offset and you are entitled to file an objection to try to get your money back. Get details about challenging an offset at the National Consumer Law Center’s Student Loan Borrower Assistance web site

Wage Garnishment

The government can and will come for your paycheck. They are enetitled to take the percentage of your paycheck that equals 15% of your disposable income. This amount is limited to 30 times the federal minimum wage.

Federal Benefits

The government can come after Social Security and Social Security Disability benefits, but they cannot take more than 15% of your benefit income, and they can’t leave you with less that $9000 per year or $750 per month. Remember that if you are permanently disabled, you are entitled to apply for loan forgiveness.


Both the government and private lenders can sue you for default on student loans, and there is no statute of limitations. They can sue at any time. The Student Loan Borrower Assistance website has information about how to defend against student loan default lawsuits.

Avoiding Default

Piles of bills and too little money can seem like an insurmountable problem. But student loans can be the least of your worries, as long as you address the issues and communicate with your lender. Student loans are set up to be flexible, and offer a lot of options for repayment. You may be able to consolidate loans for a lower single payment, defer payments until you’re back on your feet, lower your existing payment, or get a forbearance so you don’t have to make payments for years at a time. Default should only be considered as a last option.

Student Loan Payment Resources

2 Comments on “What if I Default on my Student Loan?
  1. Can you lose your professional license if you default on your student loan? If you die, is your spouse responsible for your debt? If you have a life insurance policy do they take that? Thanks….

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