Student loan default occurs when borrowers fail to make payments for a period of 270 consecutive days or more.
Consequences of Default
No one likes being in debt, but borrowers who ignore or walk away from their student loan repayment obligation soon learn that there are worse things — like bad credit. A defaulted loan can result in a damaged credit rating for at least seven years.
Your ability to rent an apartment, finance a car or house, or even get a job could hinge on your good credit. Don't doubt for a minute that even one late or missed loan payment could break the deal.
Borrowers who decide they can live with bad credit might change their minds once their loan defaults. In addition to reporting your default to credit bureaus:
- Your loan becomes immediately due and payable – in full.
- Your income tax refunds might be withheld and applied to your loan balance.
- Your wages could be garnished.
- Your state-issued professional license or certificate may be withdrawn or withheld.
- Legal action may be taken against you to enforce repayment. The legal action will also increase how much you owe by adding court costs and attorney fees.
- Collectors will continue collection activities until your account is paid in full or the default is resolved in some other way.
- The costs for collection activities and potentially large amounts of accruing interest are added to your loan balance.
- You lose eligibility for federal financial aid programs.
- You could lose access to monthly repayment options such as loan consolidation and income-based repayment.
Many borrowers wish they'd learned the consequences of defaulting before their loans went into default. Remember, repaying your student loan doesn't have to be scary or painful. If you need help, ask for it.
Use our interactive calculator to take a look at the true cost of default. Bad credit isn't the only repercussion of student loan default.
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Reluctant Defaulters
Even borrowers in the most dire of financial straits may be able to avoid default by simply working with their lenders. Most borrowers are conscientious, responsible people who have every intention of repaying their loans. When they do default, it's usually because they're facing real economic hardships. Often they enter default unnecessarily because they deal with the stress of the situation by ignoring calls and letters from creditors.
If default becomes unavoidable, borrowers still have options that will allow them to bounce back once they return to stable financial ground.
All borrowers should understand the consequences of default, and the importance of doing everything in their power to avoid it.
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Will Bankruptcy Discharge My Loan?
Bankruptcy may seem like an easy fix to some people who are struggling with consumer or business debt. But when it comes to student loans, bankruptcy is not the best choice to make. Student loans cannot be discharged under current bankruptcy laws unless a severe and proven hardship exists.
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People Who Can Help
- Your lender.
- NELA® — Your student loan guarantor has expert staff to assist you. Contact NELA.
- The Consumer Credit Counseling Service (CCCS), a division of the National Foundation for Credit Counseling, provides budget counseling, educational programs, debt management assistance and housing counseling.
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