For a young graduate, tuition costs are huge. For that reason, college students have to consider financial aid or student loans to cover the costs. Student loans may amount to hundreds, even thousands of dollars in debt. What do you do if you are faced with these major debts and you are financially challenged, so much so that you have defaulted on your student loan? Student loans are one of those kinds of debt that remains with the cosigner or borrower for as long as it is outstanding.

The Options

You cannot opt for bankruptcy or debt settlement when it comes to student loans. In fact, the court does not allow you to list your student loan on a bankruptcy declaration form; neither can you contact the federal government or bank and ask for a settlement. It does not work that way. Additionally, you cannot ignore the student loan bills that come in the mail; whether you can pay or not. You have to deal with it because this is not the kind of loan that you can get rid of.

The Consequences

However, what happens when you genuinely cannot make your monthly loan payments? You will have late payment charges, but if you continue to allow the bill to rise to hundreds or thousands of dollars, there can be major consequences. Your loan could go into default status where the lender wants you to pay the full balance.

The Timeline

Once you miss a payment on your student loan, the lender places you in delinquent status, no matter the reason for the delinquency. Your lender will see this as a huge red flag. When the payment is past due for 90 days, the lender will report it to the credit bureaus. Your credit scores will drop and you will have a negative mark against your credit rating. After you have not paid your loan payment in 270 days, the lender will place you in a default status.

Impact on Tax Refund

More importantly, the IRS could seize your income tax refund for defaulting on a student loan. One way or the other, you will have to pay your student loan.  Just so you know, the IRS works with the education department to collect millions of dollars in defaulted student loans.

Your Benefits

For reimbursement of your defaulted student loan, the government can also interrupt your social security benefits and disability benefits, but not your SSI income. One thing to note and that is the government is not allowed to leave you with less than $750 each month as income or benefits. Additionally, the government is not allowed to exceed 15% in total benefit to repay a student loan.