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What happens when you default on student loans?

13 consequences — plus what you can do if you're months behind on repayments.

Student loans might be more flexible than other types of financing. But the consequences of falling behind on your repayments can be particularly harsh — especially if you have federal loans.

It can take years to rebuild your credit after default and have unexpected repercussions. And while there are several ways out of default, there are better alternatives.

How do I know if my student loans are in default?

Student loans are in default after being late on a repayment for a specific period of time. How late depends on your lender, though it’s generally at least several months.

Federal student loans in default

Most federal student loans are in default after you fail to make a full repayment for 270 days or longer. The one exception is the Perkins Loan program. In that case, your loan is considered to be in default as soon as you’re late on one repayment.

Private student loans in default

Typically, your loan is considered to be in default after you’re more than 60 to 90 days late on a repayment, though it depends on your lender.

Often, you can find out when your loan is considered to be in default by looking at your promissory note. If it’s not mentioned there, figuring out your lender’s default policy can be tricky. Have your account number on hand before contacting your lender’s or servicer’s customer service team to get the quickest answer.

13 consequences of defaulting on your student loans

Defaulting on your federal student loans comes with the heaviest consequences, though nonpayment on private student loans can do some real damage to your personal finances as well. Here’s what could happen.

1. Your full balance will be due immediately.
  • Types of loans: Federal, private

Once your student loan goes into default, you’re required to pay off the loan’s full balance as soon as possible with federal and most private student loans. Lenders often refer to this as “acceleration” in your promissory note.

2. The default will go on your credit report.
  • Types of loans: Federal, private

Defaulting on a federal or private student loan can stay on your credit report for up to seven years. This can make it difficult to qualify for certain types of financing and lower your credit score. If it’s a federal student loan, this makes you automatically ineligible for other types of government loans.

3. You may be sued by your servicer or collection agency.
  • Types of loans: Federal, private

Servicers or collection agencies can file a lawsuit against you to demand repayment for both types of loans. If you aren’t able to follow the court’s ruling, you might be forced to file for bankruptcy.

Ignore the lawsuit and the lender can seek a judgment against you, allowing it to take steps against you like garnishing your wages or freezing your bank accounts. A judgment can last for as long as 10 years, though it depends on your state. It can stay on your credit report for up to seven years, even if you pay off your loans.

Lawsuits are more common with private than federal student loans, since the federal government has other means of collecting repayment.

4. You’re on the hook for collections and court costs.
  • Types of loans: Federal, private

If your loan goes into collections with a private agency, that agency charges a fee in addition to your repayments. This means your repayments first go toward the collection agency’s fee before your student loans, making it even more difficult to get out of debt.

Facing legal action from your servicer or collection agency? You could also be required to pay the company’s legal fees on top of your loans, depending on the judge’s ruling.

5. Your wages could be garnished.
  • Types of loans: Federal, private

The federal government can require your employer to withhold your wages to pay off your loan as soon as you’ve gone into default. Private servicers or collection agencies can garnish your wages only if they get a court order or judgment against you.

6. Your school may withhold your academic transcript.
  • Types of loans: Federal, private

Some schools will withhold your transcript and possibly your diploma if you fail to repay your student loans, though it depends. This might only apply to federal loans or both federal and private loans, depending on your university’s policy.

7. You’re no longer eligible for deferment or forbearance.
  • Types of loans: Federal

If you’re already nine months late on your federal loan repayments, you won’t be able to apply to put your repayments on hold. Private lenders might have similar policies, though it varies.

8. You’re no longer eligible for additional federal student loans.
  • Types of loans: Federal

Defaulting on a federal loan means you’re restricted to private student loans — if you can qualify with your lower credit rating. This can make it difficult to find financing if you want to continue your education or get another degree.

9. Your tax refund could be garnished.
  • Types of loans: Federal

In addition to skimming your wages, the federal government can withhold your tax refunds until your student loan is totally paid off. However, private lenders aren’t allowed to withhold your tax refund. And there are ways to prevent the tax garnishment if you act fast.

10. Your federal benefits could be garnished.
  • Types of loans: Federal

Your Social Security, unemployment, disability and any other types of benefits you receive from the government can be withheld to pay off your federal student loans after you default. This doesn’t happen with private student loans.

11. You could lose your driver’s license.
  • Types of loans: Federal

You could lose your ability to legally drive by defaulting on your federal student loans, though it depends on your state’s laws.

12. You could lose your professional license.
  • Types of loans: Federal

Need a license to legally work in your field? You could lose that — and your livelihood — when you default on your federal student loan. Like losing your driver’s license, this is only a risk in a handful of states.

13. You could lose eligibility for FHA and VA mortgages as well as SBA loans.
  • Types of loans: Federal

Defaulting on a federal loan makes you ineligible for other types of federal financing like subsidized mortgages and business loan programs.

How to keep your tax refund after defaulting on a federal student loan

What states seize licenses over defaulted federal student loans?

Losing your driver’s or professional license over defaulted federal loans is only a risk in a handful of states. But if you live in one of these states, you could also lose other licenses, like those required for hunting or fishing.

Some states haven’t enforced these laws, while others have no official regulations on the books but allow licensing boards to act according to their own rules.

You might want to take extra precautions to avoid default or act fast to get out of it if you live in one of the following states:

  • Alaska
  • Arkansas
  • California
  • Florida
  • Georgia
  • Hawaii
  • Illinois
  • Iowa
  • Kentucky
  • Louisiana
  • Massachusetts
  • Minnesota
  • Mississippi
  • New Mexico
  • North Dakota
  • South Dakota
  • Texas
  • Tennessee
  • Virginia
  • Washington

How will defaulting on my student loans affect my cosigner?

Student loan cosigners are legally responsible for paying off the student loan if the borrower can’t. So if you miss a repayment on a student loan, your servicer will likely contact your cosigner to request repayment.

If neither of you make repayments long enough for it to go into default, they could have the same negative consequences that you face, including having their wages garnished.

What is the statute of limitations on student loans?

The statute of limitations on student loans — how long your lender has the legal right to sue you for repayment — varies depending on where you live and what type of student loans you have.

Statute of limitations on federal loans

Federal student loans have no statute of limitations. This means the government can sue you for repayment if you default. However, you have more options to get out of default on federal student loans than with student debt from a private lender.

Statute of limitations on private loans

The statute of limitations on private loans varies by state, depending on the local laws for promissory notes. It can range anywhere from three to 10 years.

However, the statute of limitations can reset if you start making repayments again. And your credit will continue to suffer until you pay off all of your student debt.

I defaulted on my student loans. What can I do?

There are several steps you can take if you’ve defaulted on your student loans:

  • Sign up for student loan rehabilitation. If you’re a federal loan holder, you can get your loan out of default by making 10 consecutive repayments based on your income that are no more than 20 days late. Contact your servicer to get started or check out our guide to signing up for federal student loan rehabilitation.
  • Apply for a federal Direct Consolidation Loan. You can also hit the restart button on your defaulted federal student loans by consolidating them into one. This option lets you pick a new, more affordable repayment plan and even change servicers.
  • Consider refinancing with a private lender. Private student loan holders might be able to refinance with another lender — though many require you to be current on your student loan repayments. And you might only qualify with a cosigner.
  • Repay your loan in full. If refinancing is impossible and you don’t have a federal loan, paying off your loan in full might be your only choice — if you have the funds.

My student loans are in default and I’m going back to school. What are my financing options?

It depends on what types of loans you defaulted on. If you defaulted on a private student loan, federal aid might be your best bet since you can still qualify with poor credit. Default on a federal loan and you might need to turn to private student loan providers or private grants and scholarships.

You might also want to look into student loan alternatives like income-share agreements, which trade tuition costs in exchange for a percentage of your income over a set number of years after you graduate.

Compare student loan refinancing options

Explore your options by APR, minimum credit score, loan amount and loan term. Select the Get started button to start an application with a specific lender.

Name Product APR Min. Credit Score Loan amount Loan Term
Stride Funding Income Share Agreement
As low as 2%
None
Up to $25,000
2 to 10 years
A student loan alternative for graduate students based on your future salary.
EDvestinU Private Student Loans
4.092% to 8.609% with autopay
675
$1,000 - $200,000
7 to 20 years
Straightforward student loans for undergraduate and graduate students.
CommonBond Private Student Loans
3.74% to 10.74%
700
$5,000 - $500,000
5 to 15 years
Finance your college education through this lender with a strong social mission and terms that fit your budget.
Edvisors Private Student Loan Marketplace
Varies by lender
Varies by lender
Varies by lender
Varies by lender
Quickly compare private lenders for your school and apply for the right student loan.
Credible Labs Inc. (Student Loan Platform)
Starting at 0.99% with autopay
Good to excellent credit
Starting at $1,000
5 to 20 years
Get prequalified rates from private lenders offering student loans with no origination or prepayment fees.
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Compare up to 4 providers

Bottom line

Defaulting on your student loans has consequences that stretch way beyond a poor credit score. And if you have private student loans, you might have strictly limited options to get out of default besides paying your debt in full.

Learn more about how to refinance your student loans or federal loan rehabilitation by reading our guides.

Frequently asked questions

Can I still qualify for federal student loan forgiveness if I’m in default?

Yes, you can qualify for forgiveness if you’re in default. In fact, forgiveness can even be erased from your credit report and make you eligible for student loans and other types of federal financing again.

What’s the phone number for the Department of Education to discuss my student loan default?

The Department of Education’s default resolution group phone number is 800-621-3115. However, if you think you’re in danger of default, you might also want to reach out to your student loan servicer.

How can I find out what collection agency or servicer has my defaulted student loans?

Contact the company that you’re repaying your student loans to — that’s your servicer. If you’re unsure of who your student loan servicer is, you can find your federal student loan servicer by signing into your Federal Student Aid online account. For private loans, contact your lender.

Do public or private schools have a lower default rate on student loans?

Private schools have a lower default rate of 7.1% as opposed to public schools where 10.3% of borrowers defaulted on their federal student loans. This is according to the most recent numbers from the Department of Education on the federal student loan cohort default rate in 2015.

Check out our page on the schools with the highest student loan default rate to see if yours made the list.

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