A student loan default, which falls under the category of unsecured debt, can have severe consequences similar to failing to pay off a credit card. Such default affects your credit rating and has implications for your future loan prospects. Additionally, individuals who default on federal student loans may face wage garnishment, where a portion of their wages is withheld to repay the debt.
When it comes to student loans, borrowers typically interact with a loan servicer, who handles various aspects of the loan, including managing student loan payments and assisting borrowers. In cases of default, the loan may be transferred to a debt collection agency, which specializes in recovering overdue debts. These agencies employ various strategies to collect the outstanding amount, which can further impact the borrower’s financial situation.