Student loans are considered an installment loan, which is the same category that includes mortgages and auto loans. If the loan is deferred, it is still reported on your credit report and is classified as “deferred student loan”, which is considered in your credit scores.
There is no credit limit reported on a student loan. If you default on the loan, the negative information will stay on your credit report for 7 years from the date you pay the loan.
Student loan payments not made for 270 days are considered to be in default, unless arrangements are made with the lender.
What recourse does the lender have if you default on student loans?
- Tax refund – The IRS can take your federal income tax refund until the loan is paid. This is the most popular method by the U.S. Department of Education. You state income tax refund can also be taken.
- Paycheck garnished – They can take 15% of your disposable income.
- Suit – Government and private lenders can sue you.
- Federal Aid – If you want to return to school, you can’t qualify for Federal Aid until you pay student loans satisfactorily. This may take a full year of on-time payments.
- FHA or VA loans – You are not eligible for federal loans such as FHA or VA loans until your loan is paid.
- Statute of limitations – there is no statute of limitations on the age of the student loan debt regarding repayment.
- Social Security – The Department of Education can take Social Security retirement benefits and Social Security disability benefits. They can’t take more that 15% of your total benefit or more than $750 per month.
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