Consequences of Default & Default Prevention

What Is Default?

If you miss your regular student loan payments and do not contact your lender/servicer to make alternative arrangements to repay your loans, your loans will be considered delinquent. Your life will be interrupted with letters offering help and information at first, but they turn demanding and get to be a hassle if you continue to miss payments. The callers are not being mean; they are required by federal regulations to contact you by letter and phone. You cannot afford to miss any payments without talking to your lender or servicer. If you continue in a delinquent status for 270 days (for monthly payments) or 330 days (for less frequent payments) without resolving the issue with your lender or servicer, the guarantor of your loan will conclude that you no longer intend to repay the loan and will place it in a default status.

What Happens if I Default?

The consequences of defaulting on your student loan can be severe. Here are some of the things that could happen:

• You can be sued for the amount you owe, and you will have to pay court costs and attorneys fees.

• Your credit rating will be damaged, which means in the future you may not be able to get a credit card or borrow money to buy a car or home. See our Financial Fitness section for more information about credit reports.

• Any income tax refunds due you could be automatically directed to pay on your loan debt.

• Your wages may be garnished.

• Your account may be referred to a collection agency, and you will be responsible for paying collection charges

• You cannot receive further federal financial aid until your default situation is resolved.

• You could be denied assistance from federal benefit programs.

• You will be ineligible for deferments.

• You may be denied a professional license. If you already have a professional license, it could be suspended. For more information, see Rules for Denial or Suspension of Licenses.

How Can I Avoid Default?

Communicate with your lender or holder. It's important that you admit when you are in trouble or do not understand something about repaying your student loans. When it looks like you might not be able to make a student loan payment, call your lender or holder immediately to discuss available options. Those options may include include:

• Changing your Repayment Plan to better suit your situation

• Requesting a Deferment or Forbearance to temporarily postpone payments

• Requesting a Loan Consolidation to lower your monthly payment

• Seeking advice from a Counseling Service

Here are some other tips to help keep you out of default status:

• Make your loan payments on time.

• Set up your loan for direct withdrawals from your bank account.

• Take advantage of any repayment benefits offered by your lender or servicer.

• Notify the holder or servicer immediately if you change your address, name, or any contact information.

• Keep copies of all records related to your student loans.

Defaulting is bad for you, your lender, your guarantor, your school and the taxpayers. There are many resources available to help you; all you have to do is ASK!

Ready for the next step?

Proceed to Loan Consolidations