Which of the Following is Not True if You Default on a Student Loan?

Student loans are a fundamental part of many people’s journeys through higher education. However, this financial aid becomes a significant burden when it’s time to repay, and not everyone can meet this obligation in a timely manner. Defaulting on student loans has a wide range of consequences, some of which may not be immediately apparent. Therefore, it’s vital to comprehend all facets of this issue. So, let’s delve into the myths and facts surrounding what happens when you default on a student loan.

Before we proceed, it’s important to clarify what “default” means in the context of student loans. You are considered in default on a federal student loan if you fail to make payments for 270 days or more. For private student loans, the definition of default varies by lender and loan contract.

Misconceptions and Truths about Defaulting on Student Loans

Myth 1: Student Loan Debt Can Be Easily Discharged in Bankruptcy

Contrary to popular belief, student loan debt is not easily discharged in bankruptcy. This rule applies to both federal and private student loans. While it is not impossible, discharging student loans requires proving “undue hardship,” which is a tough standard to meet. The borrower must demonstrate that they cannot maintain a minimal standard of living if forced to repay the loans, that this hardship will continue for a significant portion of the loan repayment period, and that they have made good faith efforts to repay the loans before filing for bankruptcy.

Myth 2: Defaulting on Student Loans Only Affects Credit Score

While it’s true that defaulting on student loans has a significant negative impact on your credit score, the repercussions extend beyond that. It can lead to wage garnishment, where a percentage of your paycheck is withheld to repay your debt. Additionally, defaulting can lead to the loss of eligibility for further federal aid, compounding the financial trouble for those who want to return to school.

Myth 3: If You Default, You Must Pay the Entire Balance Immediately

If you default on your loan, the full balance may indeed become due, but you won’t necessarily be forced to pay it off immediately. The government offers several options for defaulted federal loans, including loan rehabilitation and loan consolidation, which can make repayment manageable. Private loan lenders may also be willing to negotiate repayment plans, but this varies significantly from lender to lender.

Myth 4: Defaulting on a Student Loan Doesn’t Affect Professional Licenses

In some cases, defaulting on student loans can lead to the suspension or revocation of professional licenses. The laws vary from state to state, but in some places, nurses, teachers, lawyers, and others can lose their professional licenses if they default on their student loans.

Myth 5: The Government Can’t Take Your Social Security Benefits if You Default on a Student Loan

Unfortunately, the government can and does withhold Social Security benefits if you default on a federal student loan. The Treasury Offset Program allows the federal government to offset Social Security and disability benefits to repay defaulted student loans.

The Reality: The Stigma and Financial Strain of Defaulting

Contrary to the misconceptions, defaulting on a student loan is far from a minor concern. The impacts are pervasive and long-lasting, affecting various aspects of a borrower’s life, from credit scores to future job prospects, and even retirement benefits. It’s therefore essential to seek help and explore alternatives to default if you’re struggling to repay student loans.

That said, if you’re already in default, remember that it’s not the end of the world. There are resources and programs available that can help you get back on track. It might seem daunting, but with careful planning and commitment, it is possible to recover