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What Happens if You Default on Student Loans?

Student Loans
Written by Hailey Young
Updated: January 12, 2023
4 min read
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Defaulting on student loans can be devastating for your financial and personal well-being. If you're considering skipping a student loan payment or have stopped paying your student loans, you should know what can happen if you default on federal or private student loans.

There’s a large amount of student debt in the United States. It can be almost impossible for students to pay off their debt and keep up with their loan payments. If you are worried about paying for student loans, the best option is to first accept federal student aid like scholarships and grants.

If federal aid isn't enough, private scholarships are a great option to avoid student debt. You can find plenty of scholarships on Some scholarships, like the @ESPDaniella Debt Grant, help anyone with student loan debt, even if they've already graduated.

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When do student loans go into default?

For federal student loan borrowers, you have 270 days to pay your loans before they go into default. Once delinquent student federal loans default, your loan servicer will do everything possible to collect the amount due.

For private student loan borrowers, you have less time before dealing with student loan default. If your private student loan payment is 90 days late, the lender will consider you to be in default.

What are the consequences of being in default?

The consequences of being in default differ for federal student loans and private student loans because the student loans servicer and collection agencies have different methods of collecting your money when you go into default.

Even before your loans default, though, there can be significant consequences if you don't pay your student loans. Your loan servicer can charge you late fees and report delinquency to the credit bureaus. For both federal and private student loans, defaulting can have devastating consequences.

The Consequences of Federal Student Loans Defaulting

When you default on your federal student loan payments, the loan servicer can send your account to a collections agency. Collection agencies will try to collect the amount owed aggressively, and you will also have to pay collections fees.

A default status means you are no longer eligible for additional federal student aid or federal loan relief programs. You are also no longer eligible for mortgages or car loans. The government can also withhold tax refunds or Social Security payments and use the money to pay the amount owed.

Additionally, the government can contact your employer and have them withhold a portion of your paycheck to repay your loans. If you’re still in college, your school can withhold your transcripts, making it impossible to verify your progress or transfer to another school. The government can also take you to court, and you may have to pay court and lawyer fees.

The Consequences of Defaulting on Private Student Loans

Private student loan lenders don’t have the same methods of collecting on defaulted loans as the federal government, but the consequences can still be damaging.

Most private lenders charge late fees. Typically, the fees are 5% of the past due amount. They may also hire a collections agency or take you to court to collect your payments. If your payment is 120 days late, the lender will sell the debt to a collections agency that will handle the loan going forward. Once you default, your default status will be reported to the credit bureaus, which can significantly damage your credit.

Will defaulted student loans be forgiven?

Defaulted loans are not eligible for any of the student loan forgiveness programs. There are ways to avoid dealing with the consequences of a defaulted loan. Although defaulted loans do not qualify for forgiveness, if the primary borrower dies or can no longer work due to mental or physical disability, some federal and private lenders will write the debt off.

How long does it take to recover from defaulting on student loans?

One way to recover from default quickly is to repay the defaulted loan in full. However, that's not usually an option for borrowers. Defaulted federal student loans lose eligibility for forgiveness and repayment plans, but there are other options for you to recover from defaulted student loans, such as rehabilitation and consolidation.

If you cannot repay the loan, you can rehabilitate your loan. Once enrolled in the rehabilitation program, borrowers have ten months to make nine payments towards the defaulted loans. Loan rehabilitation takes several months to complete.

While rehabilitation takes a few months, you can quickly apply for loan consolidation. Student loan consolidation allows borrowers to borrow a new loan to repay the defaulted loans.

Frequently asked questions about defaulting on student loans

Can I get financial aid if my student loans are in default?

After your federal loans default, you can no longer get any further federal financial aid, including scholarships, grants, and student loans.

How many students end up defaulting on their loans?

About a third of federal student loan borrowers have experienced default over the past two decades. And among this group of borrowers, nearly two-thirds defaulted multiple times.

How much does defaulting on student loans affect credit score?

If you miss enough payments and your loans default, your FICO score could plummet by 50 to 90 points. After your credit score drops, student loans in default will make it harder to get approval for future loans and new lines of credit, and variable interest rates will increase as your credit risk increases.

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Hailey Young

About Hailey

Hailey is adept at writing about financial aid and scholarships. Hailey has spent the majority of her high school and college career crafting her writing skills. In high school, Hailey’s writing experience included writing for her school’s yearbook as well as writing some articles for Redefy, an international non-profit whose goals are to fight stereotypes and promote positive perspectives. Hailey began studying Literary Arts and Africana Studies at Brown University after high school. In her studies, she has taken a variety of writing workshops that have helped her hone her craft as a writer. She will earn her bachelor's degree, which includes an honors degree in Creative Writing from Brown. 

Hailey is also passionate about scholarships and financial aid, as she was a scholarship recipient through high school and college. Through the generosity of others, Hailey has been able to receive a quality education and would love to pass this gift on to others. As a current senior in college, Hailey has become well-versed in the ins and outs of scholarships, student debt, and college spending. With this experience and knowledge, she is readily prepared to help others as a Content Writer for 

Hailey is no longer with the Writing Team, but we continue to value and appreciate her contributions.

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