Published in: Student Loans | Aug. 11, 2019

Defaulting on Your Student Debt Could Have This Surprising Consequence

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Many borrowers struggle to pay their student debt, but if you fail to do so, the repercussions could be worse than you imagined. 

Young woman sitting on stairs next to a backpack and books with her head in her hands

Image source: Getty Images

Many people have no choice but to take out student loans to pay for college. And not surprisingly, a large percentage struggle to keep up with those loan payments once they have their degrees in hand. 

Now, as is the case with any sort of debt, when you fail to make payments on your student loans to the point where you’re in default, you risk a number of consequences. You’re considered to have defaulted on federal student loans once you go nine months without making payments. Private loans, however, can go into default much sooner -- as soon as they officially go unpaid. 

At that point, your lender can attempt to garnish your wages to make itself whole, at which point you risk struggling financially. Furthermore, once you default on your student loans, you can pretty much count on your credit score sinking, and quite possibly to the point where you’ll struggle to get approved for another loan for a very long time. 

But defaulting on your student loans won’t just hurt your credit and put your wages at risk. In some cases, it could also prevent you from getting the job you want. 

How student loan defaults impact employment

Depending on the job you’re seeking, having a student loan default on your record could destroy your chances of getting an offer. First, if you’re applying for a government job, you’ll most likely be denied if you’re in default. This includes jobs at the federal, state, and county level, as well as military jobs. You also won’t be eligible to work as a contractor for the government if you’re in default on your loans. 

Furthermore, some private sector companies use applicants’ credit reports as a means of screening them. If a company runs a credit check on you and sees a default on your record, that could ruin your chances of getting hired, since it could lead that employer to believe that you’re not financially responsible. This especially holds true if you’re applying for a job that requires you to handle or manage money. 

Additionally, if you have a professional license that’s required to do your job, you’ll risk having it revoked once you default on your student loans. For example, depending on the state you live in, you may lose your license to teach or practice law.

Avoiding student loan default

Clearly, it’s best to avoid defaulting on your student loans. But what if you don’t have the money to keep up with your current payments?

If that’s the case, and you took out federal loans, there are different options at your disposal. First, you can try getting on an income-driven repayment plan, which will calculate your monthly loan payments as a reasonable percentage of your income, thereby making them more manageable. There’s also the option to defer your loans during a period of financial hardship, thereby getting yourself off the hook from making payments until your situation improves. 

If you took out private college loans, reach out to your lender and be open about your struggles. Your lender wants to get paid, and as such, may agree to work with you to make that happen. That could mean lowering your monthly loan payments, allowing you to defer your payments for a period of time, or even both. 

Getting out of default

If you’ve already defaulted on your federal student loans, a good option to explore is the student loan rehabilitation program. Under this program, you agree to make nine consecutive payments over a 10-month period to get current on your loan once again. Such a program doesn’t officially exist with private loans, but if you’re in default, you can contact your lender, express your desire to get out of default, and work out an arrangement that allows you to do that. 

Defaulting on your student loans could prevent you from getting or keeping your job, so don’t let that happen. Explore your options for relief if you’re struggling to stay current on your payments, because chances are, you’ll be given some leeway if you reach out to your lender and ask for help. 

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