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Wage garnishment is another tool used to collect defaulted student loans. Up to 15% of
your wages could be garnished to cover your student loan obligations.
Defaulting on a student loan ruins your credit, making it impossible to qualify for low-
interest car loans or home loans. You also lose your eligibility for additional federal
student aid in the future. If you are unable to make your student loan payment, there are
options such as deferment, forbearance, or a repayment plan. Once you default, you
lose your right to use those strategies. Let’s look at each one.
Deferment
A deferment allows you to temporality postpone making your federal student loan
payments or to temporarily reduce the amount you pay. If you are experiencing
financial hardship, go back to school, are unemployed, or are on active duty military
service, you may qualify to postpone your payments with a deferment. During a
deferment, subsidized Stafford Loans do not accrue interest. Unsubsidized Stafford loans,
PLUS loans, and consolidation loans, do accrue interest during the deferment that will be
added to the principal of your loan and increase the amount you owe. Other types of
deferments are available for students that qualify under the following categories:
Armed Forces
Domestic Volunteer
Economic Hardship
Full Time Teacher in a Teacher Shortage Area
Graduate Fellowship
Internship
Military
Parental Leave
Peace Corps Volunteer
Post Enrollment
Public Health Services
Rehabilitation Training
School
Tax Exempt Volunteer
Temporary Total Disability
Unemployment
Working Mother
Forbearance
Like a deferment, forbearance, allows you to suspend making monthly loan payments. If
you work an internship, perform certain types of community service, or find yourself
experiencing financial hardship, you may be qualified to postpone payments with
forbearance. Loans continue to accrue interest during forbearance. If possible, you
should continue to make payments on the monthly interest rate so the total amount you
owe will not increase. Special types of forbearances are available for students that
qualify under the following categories
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Section 8 – Responsible Borrowing and Budgeting