So What REALLY Happens If You Default on Your Student Loans?


With many young graduates carrying anywhere from hundreds to hundreds of thousands in student loan debt, students are currently facing a mountain of a financial challenge. On top of already high numbers, student loan debt is a sticky kind of debt… as in it stays with the borrower or cosigner no matter what.

There’s no declaring bankruptcy should you find yourself in over your head.

There’s no ignoring bills if you can’t make the payments.

There’s no getting rid of it.

But what about when you simply can’t make payments on your loan? Beyond a late payment fee, continuing to let your student loan bills stack up will eventually lead to larger repercussions. Namely, student loan default.

Borrowers can default on a loan for any number of reasons. Some borrowers default because they’re financially unable to make payments. Others default unknowingly on a debt they didn’t know that they carried. But one thing remains true among all these possibilities: If payments aren’t received by your lender, your student loan will default. What exactly does that mean? Let’s take a look.

Defaulting on your student loan debt

Late payment timeline

  • As soon as you miss your first student loan payment, you’re considered delinquent. This status can act a bit like a red flag to both you and the lender.
  • After a payment reaches 90 days past due the delinquent status will be reported to the three major credit bureaus and a mark negative mark will be added to your credit report.
  • After 270 days past due, a student loan is considered to be in default. At this point, your debt will be put into collections and payment will be required from collections agencies.

Repercussions for defaulting on your student loan

Loss of eligibility for forgiveness plans
If you have federal student loans in default, you’ll lose protections such as federal forgiveness programs, forbearance, deferment, and access to different repayment plan options.

Lowered credit score (and resulting consequences)
The default will be noted in your credit report and will continue to be visible to lenders even if the default is quickly resolved. Keep in mind this hit on credit can impact your eligibility for loans, increase your mortgage rates, and even impact your future employment opportunities.

Collections fees
Once your student loans are turned over to collections, you’ll be responsible for any associated collections fees. These will be tacked on to your initial balance of principal and interest.

Tax Refund Offset
Should you fail to pay on your defaulted loans, you may have your tax refund applied to your student loan payment. This is an automatic process and one that can be particularly difficult should you rely on your refund or end up owing the IRS taxes.

Paycheck/wages garnished
The government may begin to collect payment by automatically deducting up to 15% of your paycheck. This will be used to pay debt collections fees, interest, and then principal of your debt. For more information on how this works, check out our post on wage garnishment.

Legal actions
If you continue to ignore your defaulted loan you may face even more serious legal repercussions. The government can sue you at any time after your student loan has reached default status.

Higher interest rates
Along with a lowered credit score you’ll also face the higher interest rates that often accompany a lower score. Since the mark of default can live for years on your credit report it’s a consequence that could potentially follow you for years.

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What to do…

If you’re facing the possibility of default

There’s nothing quite so scary as receiving a bill you know you can’t pay. But despite the strong emotional response it instills, it’s essential that you act on the issue and explore your options. Rest assured, you’re not alone in your struggle.

Talk to your lender about changing your repayment plan to one that makes sense with your financial circumstances. They’re there to help guide you in your repayment and can answer any questions you might have. Beyond answering your questions they can also tell you if you qualify for programs like the Income Based Repayment plan or Pay As You Earn plan. These plans can lower your monthly bill to a number that may feel more manageable.

If you’ve already defaulted on your student loans
Take action as soon as you can. While it’s scary to receive calls from debt collectors it’s also empowering to take charge. Be the one to make the call, start the conversation, and begin exploring your options.

The agency or lender may offer a few possible options, including:

Depending on your current financial situation you might find yourself positioned to benefit from one more than the others. Go into the conversation prepped with your financial stats and account information. Your lender or debt collections agent will be able to talk you through the process of working through the tasks ahead and setting up a plan that you can manage.

Don’t let default upset your financial future

Default is a real financial challenge but it doesn’t mean that all is lost for your financial foundation. The key to avoiding or bouncing back from default is to maintain contact with your lender or servicer as soon as you anticipate any financial challenges. Keeping the lines of communication open will help you to maintain your sense of direction and to help you carve out your plan of action. Above all, remember, you’re not alone. For a closer look at the experience of defaulting on student loan debt, check out one woman’s personal story of student loan default shared via The Billfold.

Image Credit: tinylittlerocks

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  • studentdebt

    But does this just apply to federal student loans? Can’t you get rid of private loans via bankruptcy? What happens when you default on a private loan — there’s no wage garnishment, etc, is there…isn’t it treated like credit card debt?

    • bdugas

      You are correct. This only applies to government-backed student loans. If you obtain a student loan from your bank, it is treated as a personal loan and may be discharged in bankruptcy, and the statute of limitations also applies to the private student loans.

  • Great tips!


      fuck these tips and fuck paying off my loans to a country that doesn’t even pay their loans back to china fuck all ya stupid kids go play somewhere

  • gr

    Or you can do what my sister did, which was move overseas. Can’t even imagine what she owes as she went to some expensive schools, but she hasn’t paid a dime since she left and she’s probably never coming back.

    • CenterAmerica

      This is exactly what I’m doing. Currently looking at South America, possibly Brazil. +health insurance, -student loans.

      Can’t keep paying $1,000 plus in rent and $1,500 in student loans every month for the next two decades.

    • ulizos


  • Alex

    I am on a website about getting rid of debt. Why is there an advertisement for personal loans coming in from the side of the screen?

  • Nerissa

    Hey Guys!! Say Good-Bye to Student Loan Debt! Find best loan forgiveness programs only at >>>> LOANFORGIVENESS4STUDENTS(dot)COM (Just replace the (dot) with the actual . )

  • Nichole Smith

    When My husband called the collectors he was told a min payment of 5 $ a month would take his loan out of default it was a trick 2 days later he was told to pay 4000 dollers in 90 days or automatic wage garnishment will happen immediately im afraid if he pays it they will take any way has any one been in this situation???

    • Gail

      Yes, 18 yrs now and I have applied 3 times for loan forgiveness due to disability, right now on yet another letter from them with a request for more Doctor information probably all to be denied again…Debt Consolidation Canada can help with negotiating a loan and manageable payments so you can get away from the dirty trap at least…it’s horrific to think your own country could do this to you but it is a very flawed system that won’t change until we who are hurt by them get together and tell them to stop it, they don’t tell you a lot of things to trick you…

  • Bob Cummings

    this goes to show you “dont fool around with student loans”

  • Michael Magistro

    Or you can just not buy into this crap system which systematically enslaves people. Meaning, skip college like I did and build your own future.

  • Gail

    HI, I am one of the people who defaulted a student loan and has suffered devastating effects of it. Although I greatly appreciate your advice, you are also somewhat mistaken. Contacting collection agencies for an open line of communication, is in my opinion, a very bad decision. First of all, they do not care about you, they care about money and can be abusive and aggressive. Secondly, any contact can reset the time clock back on the statute of limitations. Here is what I suggest, for example, if your loan started out at 15,000 and you can get your hands on 10,000 (wait a while and save it if you have to) then call the collection agency and barter to buy out your loan from them. It’s hard to know exactly what is up with the student loans, is it government or student loans or banks or a collection agency? Thanks, Gail

  • Luz Gtz

    Hello everyone. I have a question if my student loans are in default can i get a EIN??

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  • Elizabeth Spears

    What can you do if your IBR payment which is 15% of your income is not affordable for you?