What Happens if You Default on Student Loans

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Stanley Tate

#1 Student Loan Lawyer

Updated on March 9, 2023

Are you wondering what happens when student loans default? There are big consequences.  Student loan default can lead to a drop in your credit score, wage garnishment, and a lien placed on your home and bank account.

Student loans go into default when you miss too many payments. What happens next depends on the type of student loan debt you have — federal or private. 

Federal student loans default after you miss payments for more than 270 days (nine months) and immediately put you at risk of action. The US Department of Education has strong collection powers that allow it to take money from you without a court order — immediately putting your paycheck, Social Security Benefit payments, and tax refund at risk of being garnished. 

A private loan can default after only one missed payment, but private lenders don’t have the same options. If you fall behind on private student loans, the loan holder has to wait until it sues you and gets a judgment before it can garnish your wages or seize money in your bank account. Until then, the only thing it can do is call you demanding payment and report negative information to the credit bureaus.

Ahead, learn what happens if you default on student loans.

What happens if my student loans default?

As explained above, defaulting on your student loans has serious consequences:

  • Late payments will show on your credit report. The negative marks will remain on your credit history for 7.5 years. Find out when student loans go away.

  • The defaulted loans will be moved to a collection agency. You’ll have to work with the debt collector to bring the loans current or negotiate a payoff. Read more about how to get student loans out of collections.

  • Collection fees may be added to your account. The government can add more than 20% of collection costs to your balance. Learn how to get student loan collection fees waived.

  • Your wages, tax refund, and Social Security benefits can be taken. Only federal loans can take your taxes and other federal benefits without filing a lawsuit against you. Learn how to stop student loan garnishment.

  • You’ll lose eligibility for additional federal student aid. You can return to school, but you won’t be able to receive grants, loans, and other federal financial aid until you make satisfactory payment arrangements. Read more about how to go back to school with defaulted student loans.

  • You’ll be barred from borrowing an FHA mortgage. Once you default, the Education Department adds your name to CAIVRS, the system it uses to track delinquent debt owed to the federal government. Your name will remain in that database until your loans return to good standing. Learn how to clear CAIVRS.

  • You’ll lose access to federal benefits. You’re ineligible for deferment, forbearance, income-driven repayment plans, and student loan forgiveness programs like the PSLF Program until you get out of default.

  • Your professional license could be suspended. License suspension laws vary depending on where you live. But if you work in a field like medicine or teaching, your state may temporarily suspend your professional license if you default on your loans. It may be able to do the same to your driver’s license.

You don’t have to worry about going to jail though. The police won’t arrest you for not paying student debt. Read more about going to prison if you default on student loans.

Similarly, student loan default doesn’t affect your passport. You can still travel overseas with defaulted loans.

How to find out if a student loan is in default?

Here are three ways to check if any of your federal student loans are in default:

  • Ask your servicer. The representative will be able to tell you how many student loan payments you’ve missed and whether you’re delinquent or in default. 

  • Log in to studentaid.gov. After you log in with your FSA ID, you’ll be able to see all of the federal loans you’ve borrowed, the loan balance, and the default status.

  • Call Federal Student Aid. If you can’t access the site, call the FSA support center at 1-800-433-3243. The representative will be able to find all of your loans and tell you if any are in default.

Contact the company you receive your bills from to determine if your private student loans are in default. You can also check your credit report to see if the loan is listed. If it is, contact the creditor and ask for your account status.

Learn More: How Does Student Loan Default Affect Your Credit Score?

Options to get out of default

There are three ways to get a federal student loan out of default:

  • Consolidation is the fastest way most federal student loan borrowers can get out of default. You can apply for a Direct Consolidation Loan online at studentaid.gov. The interest rate for the new loan is based on the weighted average of the interest rates on the loans included in the consolidation. Check out these tips on consolidating student loans in default.

  • Student loan rehabilitation removes the default status from your credit report after making nine on-time payments. Unless you request a lower amount, your monthly payments will be 15% of your discretionary income.

  • Settlement lets you pay less than you owe, but you won’t save much. The government is usually willing to write off half of the outstanding interest and maybe some of the principal. You’ll have to pay the settlement amount within 90 days. You also may have to pay taxes on the amount that’s canceled. Read more about the tax implications of settling student loan debt.

Private lenders don’t offer similar repayment options for defaulted loans. If your account isn’t too many months past due, your lender may be willing to bring your loans current with forbearance or allow you to make a lump-sum payment.

If that doesn’t work, you may be able to refinance the loans with a lender that specializes in refinancing defaulted student loans, like Yrefy. Another option is to negotiate a settlement, but you’ll need enough cash to pay the settlement amount in a lump sum or over a few months. Read more about ways to get rid of private student loans.

Learn More: How to Get Student Loans Out of Default

In default on student loan debt? Let’s talk.

If the process of getting out of default sounds overwhelming, I’m here to help. I’ve worked for years with people just like you with their federal and private student loans.

Schedule a call with me today. We’ll work together to develop a plan that fits your current financial situation and sets you up to meet your future goals.

We’ll help you escape the consequences of default and get back on track no matter what type of education loan you borrowed.

UP NEXT: Why Are My Student Loans Not Showing on My Credit Report?

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