Editor's Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked due to two court decisions; the Supreme Court has agreed to hear arguments for both appeals in February. In the meantime, the Biden administration extended the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
Defaulting on student loans is something that happens after you miss a series of payments on your loan. The number of loan payments missed before the loan enters default varies between federal and private student loans, but the consequences of defaulting on either type can be severe — including having the loans go to a collections agency and potential negative impacts on your credit score.
Student Loan Default, Explained
“Student loan default” might be about the scariest combination of words possible. More young people than ever are starting their careers with large amounts of student loan debt, and for some, figuring out how to make the required monthly payments can be a struggle.
Student loan default is a term for when you completely stop paying student loans. You get a bill, hide it under the mattress, and go back to binging true crime TV — and that pattern repeats for several months until your student loan provider turns your debt over to a collection agency.
Can You Default on Student Loans?
Yes, it’s possible for borrowers to default on student loans. If a borrower is struggling to make monthly payments on their student loans, default can be an option if they do not take any other action. If you are having issues making monthly payments on your federal student loans and just stop making payments, after a certain number of missed payments, the loan will enter default.
Private student loans can also go into default, though they may enter default more quickly than a federal student loan.
How to Default on Student Loans
To get more technical, defaulting on federal student loans is a process that takes place over a period of non-payment. When you first miss a payment, the loans are delinquent but not yet in default. At 90 days past due, your lender can report your missed payments to credit bureaus. And when you reach 270 days past due, your student loans are officially in default.
For private student loans, the terms for defaulting may be different. Private student loans generally go into default after three missed payments or 120 days. Private lenders may also place student loans in default if the borrower declares bankruptcy, passes away, or defaults on another loan. Terms may vary by lender, so if you have private student loans, double-check how they define default.
Defaulting on your student loans can have serious consequences, but there are ways to avoid defaulting on your student loans or recover if your loans are currently in default. If you’re worried about student loan default, the most important thing you can do is educate yourself on what it is, and how to avoid it.
What Happens When Your Student Loans Default?
1. Collection Agencies Might Come Knocking
When a borrower defaults on student loans, the lender may eventually turn the debt over to a collection agency. The collection agency will then attempt to recover the payment, typically bombarding you with frequent letters and phone calls. Collection agencies also attempt to determine what other assets, including bank accounts or property, would allow you to pay your debt. On top of dealing with regular calls from debt collectors, you will also be responsible for paying any additional fees the collection agency charges on top of your student loan balance.
2. Loan Forgiveness and Forbearance Options Are No Longer on the Table
Student loan default on federal loans means that the federal government can revoke your access to programs that might make it easier for you to pay your loans, including loan forgiveness or forbearance. This means that even if you qualify for something like the Public Service Loan Forgiveness program, you could be rendered ineligible if you let your loans go into default.
Additionally, borrowers in default lose eligibility for all future types of federal financial aid.
3. Your Credit Score Might Be Impacted
Once your student loans are in default, the lender or the collection agency will report your default to the three major credit bureaus. This means that your credit score could take a hit. A low credit score can make it harder for you to get a competitive interest rate when borrowing for other needs, like a car or home loan. But it’s worth noting that having loans in default can make it difficult to buy or sell assets like real estate at all.
4. You Might Have to Give up Your Tax Refund, or a Portion of Your Wages
If your lender or a collection agency can’t recover the amount owed, they can request that the federal government garnish your tax refund and even some of your income. For example, if you filed your taxes and were eligible for a refund, the government would instead take that refund money and apply it toward your defaulted student loan balance. On top of that, the government can garnish your wages, which means that they can take up to 15% of each paycheck to pay back your loans.
How Can You Get Student Loans Out of Default?
Just like you can’t ignore the check engine light for too long before you end up with smoke billowing out from under your hood, ignoring student loans in default is going to make things worse. The good news is that there are ways of getting out of default.
First, stop avoiding those collection calls. If your student loan provider or a collection agency is calling, your best bet is to meet your lender or the agency head-on and take charge of the situation. The lender or the collection agency will be able to talk through the repayment options available to you based on your personal financial situation. They want you to pay, which means that they might be able to help find a payment plan that works for you.
The lender may be able to offer a variety of options tailored to your individual circumstances. Some of these options might include satisfying the debt by paying a discounted lump sum, setting up a monthly payment plan based on your income, consolidating your debts, or even student loan rehabilitation for federal loans (more to come on this). Don’t let your fear stop you from reaching out to your lender or the collection agency.
How to Avoid Defaulting on Student Loans
Of course, even if you can get yourself out of student loan default, the default can still impact your credit score and loan forgiveness options. That’s why it’s generally best to take action before falling into default. If the student loan payments are difficult for you to make each month, there are things you can do to change your situation before your loans go into default.
First, consider talking to your lender directly. The lender will be able to explain any alternate student loan repayment plans available to you. For federal loans, borrowers may be able to enroll in an income-driven repayment plan. These repayment plans aim to make student loan payments more manageable by tying them to the borrower’s income. This can make the loans more costly over the life of the loan, but the ability to make payments on time each month and avoid going into default are valuable.
Is Refinancing an Option?
Refinancing student loans could potentially help you avoid defaulting on your student loans by combining all your student loans into one, simplified new loan. When you refinance student loans, qualifying borrowers may be able to secure a lower interest rate or loan terms that work better for their situation.
If a borrower is already in default, refinancing could be difficult. When a student loan is refinanced, a new loan is taken out with a private lender. As a part of the application and approval process, lenders will review factors including the borrower’s credit score and financial history among other factors.
Borrowers who are already in default may have already felt an impact on their credit score, which can influence their ability to get approved for a new loan. In some cases, adding a cosigner to the refinancing application could help improve a borrower’s chances of getting approved for a refinancing loan. Know that if federal student loans are refinanced they are no longer eligible for federal repayment plans or protections.
Help on Defaulted Student Loans
If your federal student loans are already in default, there are a couple of programs that can help you get them out of default including loan rehabilitation and loan consolidation.
To apply for student loan rehabilitation, contact your loan servicer. In order to rehabilitate your federal student loan you must agree to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the payment due date. This agreement must be completed in writing. All nine payments must be made within 10 consecutive months.
Private student loans do not qualify for student loan rehabilitation. Federal Direct Loans or loans made through the Federal Family Education Loan (FFEL) program qualify for student loan rehabilitation.
Consolidating your federal student loans into a Direct Consolidation Loan is another option to get your defaulted federal student loans out of default. To consolidate defaulted federal student loans into a new Direct consolidation Loan you have two options, which are:
• Repaying the consolidated loan on an income-driven repayment plan.
• Making three monthly payments on the defaulted loan before consolidating. These payments must be consecutive, voluntary, on-time, and account for the full monthly payment amount.
Again, private student loans are not eligible for consolidation through a Direct Consolidation Loan.
Student loan default can have serious negative effects on your credit score and financial stability. If you’re worried about defaulting on your student loans, or you have already defaulted, consider taking immediate steps to remedy the situation before it gets worse. Contact your lender or servicer to learn about options available, and consider refinancing your loans to secure a lower interest rate or monthly payment.
Refinancing student loans with SoFi can be completed online with a simple application. There are no fees and qualifying borrowers can secure competitive interest rates on their new loan. Plus, being a SoFi member opens up additional benefits like career coaching.
Does a defaulted student loan ever go away?
It is possible to rehabilitate or consolidate a defaulted federal student loan to get it out of default. Some private lenders may offer programs or assistance to borrowers default, but they are not required to do so.
Will my student loans come out of default if I go back to school?
No, if you have student loans already in default, going back to school will not remove them from default. Students who have student loans in default will need to get the loans out of default before they will qualify to borrow any additional federal student loans.
Are defaulted student loans forgiven after 20 years?
Defaulted loans are not forgiven after 20 years. Students in default may consolidate or rehabilitate their loan and then enroll in an income-driven repayment plan, which could potentially qualify them for loan forgiveness at the end of their loan term, up to 25 years.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
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