Consequences of default

If students suffered financial hardship after defaulting upon their student loan, it might conceivably deter other borrowers from going into default. Alternatively, if the consequences of default were minimal—if borrowers could “get away” without repaying their student loan—future defaults might be encouraged.
Defaulted loans were typically turned over to commercial collection agencies, which then tried to track down the borrowers and establish a repayment schedule. Sometimes the collection agencies needed only minimal efforts to find the borrowers. Once found, some borrowers were more than willing to begin repayment. In other cases, borrowers could not be found without greater efforts than the collection agency (and CSLP) thought economically warranted. In still other cases, borrowers were located, but either refused or were unable to repay.
Aside from the unpleasantness of being the target of sometimes aggressive collection efforts, borrowers did not suffer greatly as a consequence of default. Before 1991, the fact that a borrower had defaulted on his or her student loan was not reported to any of the commercial credit bureaus that determine the “credit rating” for potential borrowers. As a result, other borrowing by defaulters was simply not affected by their student loan default.

read Lack of flexible repayment plans

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