What Happens if You Default on Your Student Loans (It’s Not Pretty)

One of the worst-case scenarios for student loan borrowers is to be unable to make their payment. Given enough time (generally, 9 months of non-payment) you may default on your student loans, meaning they are officially reported as going unpaid. This is a scary proposition to consider. What happens when, for some reason, you’re unable to pay your student loans and forced into default?

The outcome is not good:

A person holding a brown empty wallet.

Default on your student loans and your loan will become due immediately

This is what happens when you default on your student loans: loans that fall into default become due in their entirety–including interest.

This means that any of your previous payment arrangements or payment plans you had agreed to–like 10- or 20-year repayment–are no longer valid. Instead, whoever owns your student loan debt will be pursuing you for the full amount that you borrowed (or some portion of it as a settlement).

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Your loans will be reported as delinquent to credit agencies

When your student loans go into default, your provider reports that to credit agencies first-thing. This means anyone with a means, or a need, to access your credit history will be able to see that you have outstanding, unpaid student loan bills.

Delinquency damages your credit score 

Because this will appear on your credit history as delinquent or unpaid debt, your credit score will suffer. Even if you’re later able to resume paying your student loans, this mark will remain on your credit for years to come.

You lose eligibility for forbearance or deferment

Many student loan programs offer things like forbearance, deferment, and income-based repayment plans to help students struggling with their monthly payments. These help students catch up on other financial obligations or deal with stretches of unemployment or underemployment.

But, if your loan falls into default, your entire balance becomes due and you lose access to these options.

Your loan may be sold to a third-party collection agency

Your original loan provider may not have aggressively tried to get you to pay. However, third-party collection agencies who buy delinquent debts call and mail you much more persistently.

If your account goes unpaid, the loan provider may sell it off to one of these companies that aggressively pursue you for payment or settlement on the balance.

Your employer may garnish your wages

Under certain circumstances, collection agencies can take legal action to pursue you for non-payment on your student loans. This may mean that your employer garnishes your wages, someone may withhold your state or federal tax returns, and a number of other not-so-fun consequences can follow.

How to avoid defaulting on your student loans

This whole proposition of defaulting on your student loans can be incredibly scary. But, there are a few steps you can take to avoid defaulting on your loans and avoiding these added headaches.

  1. Take advantage of options before it’s too late. If you think you may have trouble paying your student loan payment, call your loan provider. Ask about forbearance, deferment, or other payment options. If you allow your account to go into default, you will lose these options. Don’t wait to ask for help.
  2. Consider refinancing if your payments are too high. If you have recurring issues with making your student loan payments, then you should look into refinancing and consolidation options or other possible ways to reduce your monthly payments.
  3. Document and communicate changes in earnings or expenses. Often times in order to qualify for forbearance, deferment, or income-based repayment programs, you must provide documentation about your current situation. Make sure you obtain documentation if you change or lose your job, have a change in income, move to a more expensive city, or incur other charges that may impact your ability to repay your student loans.


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*APR includes a 0.25% interest rate reduction for enrollment in automatic payments.

**Interest rate reduction of .25% for automatically withdrawn payments from any designated bank account (“auto debit discount”). Auto debit discount applies when full payments (including both principal and interest) are automatically drafted from a bank account. The auto debit discount will continue to apply during periods of approved forbearance or deferment if the auto debit discount was in effect at the time of receiving the forbearance or deferment. Auto debit discount will remain on the account unless (1) the automatic deduction of payments is canceled or (2) there are three consecutive automatic deductions returned for insufficient funds at any time during the term of the loan.

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