Loan Default refers to a failure in repayment of a loan, in accordance with the terms agreed upon as per the promissory note. Lending institutions might take legal action in order to get their money back.
Defaulting in case of a student loan may have a wide range of negative consequences. As it is, several similar terms are there which are often mistaken for loan default. Now, loan deferment refers to a postponement in terms of the repayment on the loan. There are several reasons as to why someone may opt for deferring a loan, which includes a return to the school, economic hardships, or unemployment.
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Loan Delinquency refers to a failure in making loan payments as they get due. Extended delinquency might end up in loan default. Now, defaulting on a loan may adversely affect the credit record for several years. The default takes place when a loan gets no payment for more than 270 days. As it is, the loan leaves payment status and is due to be paid in-full when the lender makes a request. New collection costs have to be added to a loan's balance as the loan becomes much more expensive than ever before.
There are other negative consequences resulting from a defaulted loan. A student who wishes to return to school cannot qualify for federal aid in the United States until satisfactory payment arrangements are made on the defaulted loan or the loan is rehabilitated, a process that can take as long as a full year of on-time payments. Garnishment of Wages and Tax Refund
In addition, the IRS can take the borrower's income tax refund until the defaulted loan is paid in full. This is a popular way of collecting on loan debt, and the Department of Education collects hundreds of millions of dollars this way.
The government can also garnish wages as a way to recover money owed on a defaulted student loan. The United States Department of Education and guarantors are authorized to garnish 15% of a defaulted borrower's wages. The loan holder does not have to sue the borrower first. The borrower can object to the garnishment, but only under very specific circumstances, such as if his or her weekly income is less than 30 times the federal minimum wage.
Defaulting on student loans can also end in a lawsuit. The government and private lenders can sue in order to collect on loans. There is no time limit on suing to collect student loans, and the borrower can be sued indefinitely.
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