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Student Loan Defaults Hit 7%, So What Happens If You Default?

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The national default rate on student loans hit 7%, the Department of Education reported. For comparison's sake the overall default rate in 2003 was 4.5%.

The 7% overall default rate represents the cohort of borrowers whose first loan payments became due between Oct. 1, 2007 and Sep. 30, 2008, and who defaulted before Sep. 30, 2009. During that period, nearly 3.4 million borrowers entered repayment and more than 238.00 defaulted.

The Department of Education data shows a vast discrepancy between private and public schools and for-profit schools. For-profit schools represented 23% of the borrower cohort, but 43% of all defaulters.

Ok, so what happens when you default on a student loan?

The first thing that happens is you get assessed a wide range of fees for being late and in default on the loan. In addition, collection agencies may charge you a fee to attempt to collect the debt. The Department of Education will then garnish your wages, up to 15% of your disposable income, unless you have returned to work within 12 months of being laid off or fired. Even then, you can only postpone the inevitable wage garnishment. Because student loan debt is not dischargeable, ever, you can be sued by the Department of Education to obtain repayment of the loan indefinitely. In most states, the Department of Education can obtain your property to satisfy the debt, including things such as cars and antiques, bank accounts, even IRS tax refunds.

In other words, once you sign and accept the terms of a student loan, you owe that debt forever. Forever.
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