What Happens When You Default on Student Loans? Bad Things

#1 Student loan lawyer

Updated on October 29, 2023

Worried about defaulting on your student loans? You should be, but it’s not a dead end. In this article, we’ll explain what “default” means and why it’s a big deal for your money. We’ll cover federal and private student loans, so you’ll know what you’re up against.

Good news first: if you’ve already defaulted or are close to it, you can still fix things. Federal loans can give you a second chance. They have choices like “loan rehabilitation,” “consolidation,” and the new Fresh Start Program. Got private loans? Talk to your lender to see if they’ll let you change the loan terms or get a new loan with better repayment options.

So, if you’re almost in default, don’t lose hope. You can still get back on track. There are ways to pause your loan payments, especially if you have federal loans.

Keep reading to learn more about what happens when you default on student loans and what you can do to get your finances back in shape.

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What Happens When You Default on Student Loans?

When you default on student loans, you trigger serious consequences. You may have to pay collection fees, which can increase your balance. Your credit score may also be affected. In some cases, your wages could be taken. You might even lose tax refunds and Social Security benefits. Additionally, you’ll lose eligibility for additional federal student aid.

Related: How to Find Out How Much I Owe On Defaulted Student Loans?

Default kicks in for federal student loans after 270 days of missed payments. Once that happens, the federal government can flex its whole collection muscle without taking you to court. The Department of Education in the US can make your employer take money from your paycheck. It does that by sending your job an administrative wage garnishment order.

Great news! The Biden administration won’t collect defaulted student loans until September 30, 2024. This will give you some time to get out of default and find an affordable student loan payment plan.

Related: Default vs Delinquency

What Happens When You Default on Private Student Loans?

When you default on private student loans, late payments appear on your credit report, your lender may demand full payment right away, and you risk being sued. Private lenders cannot garnish wages or seize assets without a court judgment, unlike federal loans.

Private student loans can enter default status just 90 days after a missed payment.

If this has happened to you, don’t panic. Lenders often offer options like forbearance or an interest rate reduction program.

If you can’t meet these terms and stop making your monthly payments, your loan may be charged off. Once that happens, your credit will take another hit. Plus, you’ll be at risk legal action.

To learn more, read our deep dive on private student loan default.

Immediate Impact of Student Loan Default

Wondering what happens the moment you default on your student loans? Your credit score dives, your wages could be snipped, and you might even get slapped with a lawsuit. Here’s how it breaks down:

  • Your Credit Score Will Suffer: Defaulting does double damage to your credit. Not only do you rack up missed payments, but you also get a bad mark on your credit report. This black mark can stick around for seven years, making everything from buying a car to renting an apartment harder.

  • Legal Troubles, But Not Jail Time: You could face wage garnishment and lose your tax refund. Lawsuits? Those are possible, too. But relax. You won’t go to jail for defaulting on a student loan. Just don’t ignore any court orders, or you could get hit with contempt charges.

  • Your Home and Assets Aren’t Safe: You might think student loans being “unsecured” means your home is safe. Not quite. If you lose a lawsuit because of the default, you could have a lien put on your assets, including your home.

  • Other Fallout: Once you’re in default, say goodbye to options like pausing your loan payments (deferment) or temporary relief (forbearance). You also can’t get more federal aid, and you’ll probably get hit with extra fees from collection agencies.

Federal vs. Private Student Loans: Specific Consequences

Consequence Category

Federal Student Loans

Private Student Loans


1. Credit Score

Credit score takes a hit; derogatory mark on credit report lasting 7 years.

Credit score is damaged; late payments and default noted on credit report.

Both have long-term credit impacts.

2. Legal Consequences

Wage garnishment, tax refund and Social Security offsets, no need for court judgment.

Risk of lawsuit, wage garnishment and asset seizure only after court judgment.

Federal loans have more immediate collection powers.

3. Threat of Lawsuit

Rarely sues; uses other means of collections first.

More likely to sue, often waits until statute of limitations is near expiration.

Different approaches to legal action.

4. Repayment Options

Ineligible for deferment, forbearance, and further federal aid.

Options for forbearance or interest rate reduction usually cease.

Loss of flexibility in repayment.

5. Asset Risks

No direct risk to home, but could face liens on assets after court judgment.

Risk of liens on assets, including home, after court judgment.

Private loans often move faster to legal actions.

6. Additional Fees

Collection agency fees may be added.

Additional fees and increased interest rates.

Can add significantly to loan balance.

What Comes Next After a Student Loan Default?

Defaulted on federal student loans? You now owe the total loan amount, plus any interest that’s piled up. The loan holder can start snipping away at your wages. Could they sue you? It’s possible, but they usually have other ways to get their money back and lawsuits are rare.

With private student loans, the whole loan amount is due right away, like federal loans. But private lenders are more aggressive. They might try to get the money back themselves or hire a collection agency, or even sue you. When they sue, expect extra costs like court fees to be added to your debt.

In my experience, both lenders and debt collectors play the waiting game. They often wait until the statute of limitations is almost up before suing you. So, don’t be fooled into thinking they’ve forgotten about the debt.

Think making payments on a defaulted loan will quickly fix your credit score? Think again. Lenders will keep reporting late payments on your credit until you’ve paid off the whole balance. This can mess up your chances of getting things like a mortgage and can hike up interest rates on personal loans and credit cards.

Options for Getting Out of Default

Loan Type



Credit Impact/Notes

1. Federal

Student Loan Rehabilitation

Make nine on-time payments within a 10-month period.

Default removed from credit report; missed payments remain.

2. Federal

Student Loan Consolidation

Make three full, on-time payments or repay on an income-driven plan.

Default record stays on credit history.

3. Private

Negotiate with Lender

Ask lender for options to bring loans back to good standing.

Terms may vary.

4. Private


Refinance the debt with another lender.

May require a cosigner.

5. Private & Federal

Debt Settlement

Settle the debt for less than what you owe.

Significant credit impact.

For a limited time, there’s a special way out of default for federal student loan borrowers—the Fresh Start Program.

This is a game-changer.

It puts your defaulted loans back in good standing. And the best part? No paperwork. Plus, there’s no requirement to make nine on-time student loan payments before getting out of default.

To get enrolled, contact the Default Resolution Group or your guaranty agency. They’ll ask you a few questions, and you’re on your way to a cleaner financial slate.

Bottom Line

In short, if you default on your student loans, it’s terrible news. If you default on your student loans, the major credit bureaus will be notified. You’ll also los access to student loan forgiveness programs, income-driven repayment plans, and deferment or forbearance options.

Want to know more? Book a call with our team. We can help you find the best strategy to dig out of default and back into repayment.

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Stop Stressing


What are the consequences of defaulting on a student loan?

The consequences of defaulting are that you’ll lose the chance for more federal aid and wreck your credit, making it challenging to get loans or credit cards. Even buying a car or a home could become a headache.

What happens if I never pay my student loans?

If you never pay your student loans, expect late fees, a damaged credit score, and wage cuts from your paycheck. You might qualify for plans that can lower or forgive the debt. Bankruptcy is a last resort, but it can be your best way out of student debt quickly.

What are three consequences of not paying your student loans?

The three consequences of not paying your student loans are that you could end up in default, lose federal loan perks, and see your wages garnished. You’ll also be blocked from getting more federal student aid.

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