Student loans have to be paid off at some point. To go about repaying that debt, you have plenty of options. Refinancing your loans so they’re more affordable might work and consolidating them can make your payments easier to manage. Regardless of the approach you take, here are six reasons why you’ll want to take care of that debt as soon as possible.
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1. You Don’t Want to Hurt Your Credit Score
Defaulting on your student loans is potentially just as bad as defaulting on a mortgage or a car loan. No, you might not lose your home or your car, but you can do damage to your credit.
Besides keeping you from getting an apartment or a loan at the best interest rates, bad credit can keep you from getting a job if an employer assumes your poor score means you’re unreliable.
2. You Don’t Want Your Wages Garnished
You work hard for your paycheck and you probably wouldn’t be happy if part of it suddenly disappeared. That’s what could happen, though, if you forget to make your student loan payments.
If you have federal loans, your boss might subtract as much as 15% from your pay each period to send off to the government once you default. If you have private student loans, your lender might have to take legal action against you first to garnish your wages, although this process can vary by state. Filing for bankruptcy can erase the rest of your unpaid debt, but it often won’t eliminate your student debt.
3. You Don’t Want to Miss out on a Tax Refund
For many Americans, getting a refund every tax season is a treat. If you’re behind on your federal student loan payments, however, you might not get any money back from the IRS. When you default on your loans, your information might be sent to the Department of Treasury, which can then use your whole federal refund (and possibly your state refund) to cover your debt.
When married couples with outstanding debts file jointly, both individuals can lose their tax refund.
Related Article: What You Should Know About Tax Refunds
4. You Don’t Want to Lose Your License
We’ve already mentioned that failing to cover your student loans can prevent you from being hired. Did you know, however, that if you’re already working, not paying off your loans can cost you your professional license? If you live in New Jersey, California or any of the other 20 states that revoke licenses, you might lose your ability to practice as a nurse, lawyer or social worker.
In some states, you can lose your driver’s license as well for defaulting on your student loans. In the meantime, you might have to rely on public transportation to get around.
5. You Don’t Want to Ruin Your Relationship With Your Co-Signer
Unlike with federal student loans, you usually can’t get approved for a private student loan without having your credit checked. If your credit wasn’t up to par when you first applied for funding, you likely had to get a relative to agree to be your co-signer. Ignoring your student loan bills not only hurts you and your credit score, but it can also damage your co-signer’s score.
Family drama isn’t pretty. You wouldn’t want your mother or father to blame you for their financial problems, so it’s in your best interest to get a handle on your loans.
6. You Don’t Want to Lose Part of Your Social Security Check
Some millennials believe that their chances of receiving Social Security benefits in the future are pretty slim. It’s better to be safe than sorry, though. If you can’t keep up with your federal student loan payments, the government has the right to garnish your benefits.
In 2013, about 156,000 Americans lost a portion of their benefits to garnishment. How big your Social Security check is will depend on when you retire, your birth year and your annual income. On average, seniors only receive $1,294 a month from Social Security. That isn’t a lot of money, so we’re guessing you wouldn’t want to receive an even smaller amount.
Related Article: Should I Make a Lump Sum Student Loan Payment?
Student debt shouldn’t be taken lightly, especially when defaulting on your loans can result in such harsh consequences. If your monthly bill is too high, it might be time to switch over to another repayment program. Forgetting to pay your loans in the short-term might not sting too much, but over time it can come back to bite you.
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