What Happens When You Default on Student Loans?

Dealing with student loans can be a struggle, and if you ever worry about missing a payment, you’re not alone. A payment that’s a few days or even a week late on a student loan isn’t likely to cause serious credit harm. But if you default, credit damage is just the beginning of the story.

What does it mean to default on student loans?

Defaulting on a student loan isn’t just missing a payment.

As soon as you miss a payment due date, your loan is considered delinquent. If your loan is delinquent, catching up usually only involves paying the past-due amount (although your lender may charge a late fee).

When you default on your student loan, you’ve gone so long without making payments that you’ve violated your loan agreement. Federal student loans usually go into default after about 270 days (roughly nine months) of non-payment.

There’s no singular default timeline for private student loans. Many private lenders consider your loan to be in default after 90 to 120 days of non-payment.

Once your loan enters default, several things can happen:

• Your loan balance is typically accelerated, meaning it becomes due immediately
• Your credit score may suffer further damage
• You lose access to flexible repayment plans, deferment, and forbearance options
• You may face lawsuits or involuntary collection actions

Student loan default consequences can be long-lasting and severe, so doing what you can to avoid going into default is worth the effort. If you’re struggling to make payments, reaching out to your lender to ask about forbearance, deferment, or any other assistance they may be able to offer is a reasonable first step.

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What happens when you default on federal student loans?

So what happens when you default on student loans? Exact timelines and consequences depend on whether you have federal or private loans. This is the typical timeline for federal loans:

• After 90 days of non-payment, your lender may start reporting your missed payment to credit bureaus
• After 270 days of non-payment, the loan is in default

There is one possible exception: If you have a Perkins Loan — a type of federal loan last offered in 2018 — your loan can default immediately after a missed payment.

These are some of the main student loan default consequences for federal loans:

More credit damage

Some people think that because their missed payments were already reported to credit bureaus at the 90-day mark, going into default won’t cause further damage.

Unfortunately, a default is an additional derogatory mark on your report that can damage your score further.

Wage garnishment

In most cases, a creditor has to sue you and get a judgment before they can garnish your wages. But because federal loans are from the federal government, your wages can be garnished without a court order.

These garnishments can be significant. Generally, the government may take up to 15% of your post-tax earnings per pay period.

Tax refund and Social Security offset

If you get a tax refund and you have a student loan in default, the government may intercept that refund and use it to pay your loan debt. The government may also take up to 15% of your Social Security or disability benefits above $750 a month. (The first $750 of benefits is protected.)

Loss of eligibility for federal aid and repayment plans

Flexible repayment options like forbearance and income-driven repayment plans are significant advantages federal student loans hold over private loans. When your loan is in default, you lose access to them, and you can’t receive additional federal student aid.

You can restore eligibility by paying off the loan (including through a Direct Consolidation Loan), completing loan rehabilitation, or making six consecutive, on-time payments on the defaulted loan. This last option reinstates your aid eligibility even though the loan itself stays in default.

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What happens when you default on private student loans?

Private student loan defaults generally move faster than federal loan defaults. Many private lenders will start reporting your missed payments to credit bureaus after 30 days, and your loan may go into default after 90-120 days (although some lenders wait longer).

Private lenders don’t have the authority to garnish your wages without a court order. They also can’t intercept tax refunds or Social Security benefits.

Instead, private lenders will typically file a lawsuit against you to collect the debt. At this point, some may be willing to settle the debt for less than its face value.

If the lender sues you and wins, they may be granted a judgment against you. The judgment lets them garnish your wages, take money out of your bank account, or place a lien on your home.

Consider speaking with a financial advisor or nonprofit credit counselor if you need guidance on your specific situation. The National Foundation for Credit Counseling (NFCC) offers free or low-cost counseling at 1-800-388-2227.

Read more >> Student loans explained: what you need to know

How to get out of student loan default

Defaulting on student loans is enough to make anyone feel hopeless. However, there are a few strategies for getting out of it:

Loan rehabilitation

If you have a federal student loan, loan rehabilitation is a strong option for getting out of default, but you can only rehabilitate a given loan once. If you’ve already rehabilitated a loan and defaulted again, consolidation or repayment in full are two options.

To rehabilitate your loan, you’ll need to get in touch with your lender or the Department of Education’s Default Resolution Group.

You must sign a written agreement to make nine on-time payments over a 10-month period. The lender will review your financial information before setting your monthly payment amount.

If you make all required payments, your loan will be in good standing again, and the default is typically removed from your credit report. However, the record of your late payments will stay.

Loan consolidation

A Direct Consolidation Loan is another option if you’ve defaulted on a federal student loan. You can consolidate a single defaulted Direct Loan on its own. The exception is if your defaulted loan is already a Direct Consolidation Loan. In that case, you’ll need another eligible federal student loan to consolidate it with.

To use this option, the Department of Education requires you to do one of the following:

• Make three on-time, in-full payments on the defaulted loan first
• Agree to repay the consolidated loan under an income-driven plan (which, for a consolidation loan taken out now, means the Repayment Assistance Plan)

If you’ve defaulted on a private loan, you may be able to consolidate or refinance it by taking out a new private loan. However, a default on your credit report may make it difficult to qualify for another loan.

Federal repayment programs can change. Confirm current plan availability at StudentAid.gov.

Repayment in full

Many people don’t have the available resources to pay off a defaulted loan in full. However, if you’re able to do it, this option will quickly get rid of the default and your debt as a whole.

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