The Impact of Defaulting on a Student Loan

Defaulting puts you at risk of wage garnishment, in addition to other penalties

Defaulting on student loans is a fairly common occurrence, although it's one that can have dire consequences for a borrower's finances and future lifestyle. That said, the current COVID-19 emergency relief in place since March of 2020 is still protecting borrowers with federal student loans from some potential impacts of default, such as wage garnishment and withheld tax refunds. Since this emergency deferment is currently scheduled to end on Aug. 31, 2022, however, you should strive to have an understanding of the impacts of defaulting and what you can do about it before it's too late.

If you're worried about defaulting on your student loans (whether federal or private), you should learn the potential consequences you'll face as well as the steps you can take to get out of default. Read on to learn what happens when you're significantly behind on the payments for your student loans, whether you have federal loans or private student loans.

Key Takeaways

  • If you miss a federal student loan payment by even one day, your payment becomes delinquent. From there, you are considered delinquent on your student loan payment for 90 days, at which point your loan servicer will report your delinquency to the three credit bureaus: Experian, Equifax, and TransUnion.
  • Generally speaking, student loans made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program are considered in default once scheduled student loan payments are not made for at least 270 days.
  • Federal student loans made under the Federal Perkins Loan Program may be considered in default if you don't make a payment by the loan's due date.
  • The consequences of letting student loans go into default can include damage to your credit score, lack of access to federal protections like deferment and forbearance, wage garnishment, loss of eligibility for federal student aid, and more.

What Happens if You Default on Federal Student Loans?

If you let your federal student loans go into default because you fail to make scheduled loan payments for at least 270 days, an array of consequences can come into play. These consequences, which are outlined clearly on the Federal Student Aid website, can include the following:

  • Acceleration: When your federal student loans are in default, the entire unpaid balance of your loan plus all interest you owe becomes immediately due through a process known as acceleration.
  • Loss of federal benefits: Defaulting on federal student loans means losing access to federal protections like deferment and forbearance.
  • Loss of flexibility: Defaulting on federal student loans means giving up the chance to choose your own payment plan or switch student loan repayment plans. You also lose access to income-driven repayment plans.
  • Loss of federal student aid: You are no longer eligible for federal student aid once your loans go into default.
  • Damage to your credit score: Late payments on federal student loans can actually be reported to the three major credit bureaus 90 days after you're late, which is well before you're officially in default. Damage to your credit score that results can make it difficult to get a credit card/car loan or take out a mortgage to purchase a home.
  • Treasury offset: Through a process called treasury offset, your tax refunds and federal benefit payments may be garnished or withheld to repay overdue student loan balances.
  • Wage garnishment: The federal government may garnish your wages in order to help cover your student loan payments.
  • Legal problems and expenses: Your loan servicer may take you to court, which can lead to you having to pay court fees and other legal expenses.
  • Other issues: The school you attended may withhold your transcript, which can make it difficult to get into another institution of higher education. It's also possible you could be barred from purchasing or selling real estate and other assets in some scenarios.

According to Federal Student Aid, you should reach out to your student loan servicer if you're having trouble making payments or you want to find out how you can get your student loans out of default. "There are several affordable repayment options that you may be able to take advantage of to continue making loan payments even when times are tough."

Borrowers with federal student loans in default can also use loan rehabilitation or loan consolidation to get their loans out of default and get back on track.

What Happens if You Default on Private Student Loans?

Borrowers with private student loans face a different set of rules when it comes to late payments and the consequences that can result. The fact is, borrowers with private student loans must follow the rules and guidelines set by their student loan provider, and the consequences of missing loan payments can vary from lender to lender. 

If you miss a payment with a private student loan company and it's been 90 days or longer, your student loans are considered in default. According to the Consumer Financial Protection Bureau (CFPB), you can also default on private student loans "if you declare bankruptcy, default on another loan, or die."

In the event 90 days or longer of missed payments have passed, your default will be reported to the credit bureaus. If you continue to miss payments, your student loan debt will likely be sent to a collections agency.

Like with federal student loans, you may also be sued by your lender if you fail to repay amounts you borrowed to fund your education. This can mean being on the hook for court costs and other legal fees in addition to the principal of your loan balance and all interest that has accrued.

The CFPB says that, if you believe you may have trouble making payments on private student loans, you should reach out to your loan provider right away. Doing so can help you determine if switching repayment plans is an option or if your private student loan servicer offers a temporary forbearance or unemployment protection program.

What Happens When People Default on Student Loans?

Consequences for letting federal student loans go into default can include damage to your credit score that takes years to repair, lack of access to federal protections like deferment and forbearance, wage garnishment, being sued by your loan servicer, and more.

At What Point Is a Federal Student Loan Considered To Be in Default?

Federal student loans are considered in default after you have failed to make scheduled monthly payments for 270 days.

How Can You Get Federal Student Loans Out of Default?

The U.S. Department of Education says there are a few different options to help get federal student loans out of default, including loan rehabilitation, loan consolidation, and repayment in full.

The Bottom Line

The impact of defaulting on a student loan can be devastating and it can take years to repair the damage to your credit score and your finances. If you're worried about missing payments or you're suffering financial hardship of any kind, your best bet is taking action now, even if you haven't missed a student loan payment yet.

By reaching out to your loan issuer and talking over your concerns, you can find out what options are available to help you avoid default in the short-term. With some smart planning and enough time on your side, you may be able to get back on track and avoid the worst consequences of letting student loan payments lapse.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Federal Student Aid. "COVID-19 Emergency Relief and Federal Student Aid," Select "History of the COVID-19 Emergency Relief Flexibilities."

  2. Federal Student Aid. "Student Loan Delinquency and Default."

  3. Federal Student Aid. "Getting Out of Default."

  4. Consumer Financial Protection Bureau. "What Happens if I Default on a Private Student Loan?"

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