What happens when you default on a student loan?
Defaulting on a student loan is more than just missing a few payments. It’s a serious financial event that can lead to long-term consequences for your credit, income, and even your ability to return to school. Whether you’re facing financial hardship or just curious about how student loans work, understanding what happens in default is critical to staying on solid ground.
In this article, we’ll break down what default means, what the fallout looks like, and what steps you can take to get back on track.
What Does "Default" Mean?
When you take out a student loan, you agree to make regular payments. If you stop paying:
For federal student loans, you’re considered delinquent the day after a missed payment, and your loan enters default after 270 days (about nine months) of nonpayment.
For private student loans, default terms vary—some consider you in default after 90 days or even after a single missed payment, depending on the contract.
Once your loan is in default, it's no longer in good standing, and lenders can begin the collections process.
What Happens After You Default?
Here’s what you can expect if you default on your student loan:
1. Your Credit Score Takes a Hit
Loan default is reported to the major credit bureaus and will appear on your credit report for up to seven years. This can affect your ability to:
Rent an apartment
Qualify for a mortgage
Get approved for a credit card
Take out a car loan
Even if you eventually repay the loan, the default status can leave a lasting mark on your financial history.
2. Wage Garnishment and Tax Refund Seizure
For federal loans, the government can collect what you owe without needing a court order. This may include:
Wage garnishment – A portion of your paycheck is automatically taken out
Seizure of tax refunds – Your annual refund from the IRS can be withheld
Offset of Social Security benefits – Even retirement income can be affected
Private lenders may need a court judgment to garnish wages but will often use aggressive collection methods.
3. Loss of Eligibility for Federal Aid and Repayment Plans
Once in default, you lose access to:
Federal repayment options (like Income-Driven Repayment)
Deferment and forbearance
Additional student aid (which could affect plans to return to school)
This also means no more access to Public Service Loan Forgiveness or interest subsidies.
4. Collection Fees and Increased Loan Balance
Default often leads to additional charges, including:
Collection agency fees
Court costs (if applicable)
Continued interest accumulation
Your balance can balloon quickly, making it even harder to repay.
5. Legal Action
If a private lender decides to sue you, they may win a court judgment to:
Garnish wages
Place liens on property
Seize bank assets (in extreme cases)
Federal loans usually avoid court, since the government has built-in collection authority.
How to Get Out of Default
The good news: Default doesn’t have to be permanent. Here are a few ways to recover:
1. Loan Rehabilitation (Federal Loans)
You make nine voluntary, on-time payments within 10 months. After successful completion, the default is removed from your credit history.
2. Loan Consolidation (Federal Loans)
You combine your loans into a new Direct Consolidation Loan and agree to repay under an income-driven plan.
3. Negotiate or Settle (Private Loans)
Private lenders may be willing to negotiate a settlement, especially if you’re experiencing long-term financial hardship. Be sure to get everything in writing.
Final Thoughts
Defaulting on a student loan is a stressful and serious situation—but it’s not the end of the road. Whether you’re already in default or want to avoid it altogether, staying informed is the first step to financial recovery.
At College ROI, we help students and families navigate the real cost of college so you can make smart, sustainable decisions—before and after graduation. Use our free tools to understand the long-term impact of college debt and create a plan that works for your future.
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