Student Loan Default

If you default on your student loan, you face serious penalties.

  • Your school or lender will report your default to the national credit bureaus. You will be assigned the worst possible credit rating, which remains on your credit report for seven years after you pay your loan in full. This credit rating may have severe consequences on your ability to obtain a credit card or financing for a home or car.
  • Your loan may become immediately due and payable in full. You are not eligible for deferments, forbearances, or alternative repayment plans.
  • Your school or lender may turn your account over to a professional collection agency, in which fees and other additional costs are added to your principal balance.
  • Your wages may be garnished. federal regulations allow up to 10% of your income after taxes to be taken away until your loan is paid in full — without going to court first.
  • Your Federal Treasury payments (such as federal income tax refund and Social Security benefits) can be taken and applied to your defaulted loan. Your state income tax refund can also be taken.
  • You will not receive any federal or state student financial aid if you decide to return to school.
  • Your account may be assigned to the Department of Education, which may sue you.
  • You may be denied employment with a federal, state, county, city or local government; or your existing employment with such agencies may be terminated.
  • You may be denied a professional license required for your profession.

What to Do If You Can’t Pay Your Loans

If you're having problems making your student loan payments, contact your loan holder immediately. Unlike other consumer debt, such as credit cards, you have options. You may be eligible for a deferment, forbearance, loan consolidation or loan cancellation/discharge.

If you experience financial difficulties due to unemployment, illness or other economic hardships, don't be embarrassed or afraid to ask for help. Your loan holder can talk with you about your options.

Also, you might consider contacting a local, non-profit consumer counseling organization for advice about managing all of your personal finances. Visit the National Foundation for Credit Counseling website to locate an agency near you or to use itsr online debt advice service.