Most federal student loans default when the borrower fails to make payments for 270 days (nine months). Private loans may have different terms; they may default if you miss just one payment. Read your loan contracts carefully to be sure you understand when you're at risk for defaulting -- then do all you can to avoid it.
The following list of "Consequences and Penalties of Default" should convince you that defaulting on your student loans can lead to overwhelmingly negative consequences.
If You are In Default, Act Now To Take Advantage of the Department of Education's "Fresh Start" Program
That's why it's crucial to NOW to take advantage of a one-time "Fresh Start" offer from the federal government to get out of default before resuming student loan payments in 2023.
To use Fresh Start to get out of default, you must contact your loan holder. If your loans are held by ED, you can contact studentaid.gov using one of the three methods below. If your loans are held by a guaranty agency, you’ll need to call that agency. Find contact information for guaranty agencies.
If you don’t know who holds your loans, call 1-800-621-3115 (TTY 1-877-825-9923).
Three Ways to Contact the U.S. Department of Education About Fresh Start
This process can take less than 10 minutes.
Online—Go to myeddebt.ed.gov and log in to your account. This is the easiest option if you know your login.
Phone—Call them at 1-800-621-3115 (If you are deaf or hard of hearing, the TTY number is 1-877-825-9923).
Tip: Before calling, look up your income on your most recent federal tax return (line 11 of IRS Form 1040). But if you can’t find it or didn’t file taxes, don’t worry—you should still call.
What to expect on the phone: It will take about 10 minutes. A representative will ask for some information to find your record, then ask why you are calling (your answer: Fresh Start, to get out of default). You will also get an opportunity to sign up for an income-driven repayment plan, which likely will qualify you for a lower monthly payment than a standard plan.
Mail—Write to P.O. Box 5609, Greenville, TX 75403. In your letter, include your name, social security number, date of birth, and the following: “I would like to use Fresh Start to bring my loans back into good standing.”
What Happens Next
If you use Fresh Start to get out of default, here’s what will happen:
The Department of Education (DOE) will transfer your defaulted loans from the Default Resolution Group (or from a guaranty agency) to a loan servicer.
The DOE will return your defaulted loans to “in repayment” status.
The DOE will remove the record of your default from your credit report.
Enroll In an Affordable Repayment Plan
When you get out of default, you will choose a type of payment plan to repay your loans. Most borrowers enrolling in Fresh Start (about 80%) choose an income-driven repayment (IDR) plan.
Student Loan Default: Consequences and Penalties
If your student loans go into default, here are some of the difficulties you may face:
- Your full loan balance, including interest, will be due immediately. (This is called "acceleration.")
- Your loan will be assigned to a collection agency, and fees will be added to the balance of your loan.
- Your loan debt will further increase because of late fees, added interest, court costs, attorney fees, and any other expenses incurred during the loan collection process.
- You will no longer be eligible for loan deferment, forbearance, or flexible repayment options.
- You will lose all eligibility for additional federal student loans and grants.
- Your federal and state tax refunds can be seized.
- A portion of your Social Security disability or retirement benefits can be seized.
- If the federal government requests it, your employer can garnish your wages -- that is, send a portion of your pay to the government to cover your debt. (To learn about wage garnishment laws and limits in California, see the Wage Garnishment page at Nolo.com)
- The government or private loan holders may sue you.
- If your loan is cosigned, your cosigner will be on the hook for the debt.
- You may find yourself caught in a situation where you have astronomical debt and no exit, because there's no statute of limitations on student loans and they cannot usually be discharged in bankruptcy.
In addition, California may impose penalties for borrowers in default, such as refusing to renew a professional license or denying access to school records. For more information, see "California Penalties for Defaulting on Your Student Loans."
Finally, members of certain professions may face unique and sometimes harsh penalties. For example, the names of medical professionals who have defaulted on HEAL Loans are regularly published on the Internet. Health professionals in default are also excluded from participating in the Medicare and Medicaid programs, meaning they can't accept payments from those programs or work for any organization that has a contract with either program.
Student Loan Default Can Seriously Damage Your Credit
One of the worst and most tenacious consequences of defaulting on student loans is the damage it can do to your credit rating. If you let your loans go into default, it will take years to mend your credit report. In the meantime:
- You may not be able to get a mortgage, car loan, or credit cards.
- You may have trouble renting an apartment.
- Lenders may increase interest rates on your existing loans or credit cards.
- You may have trouble opening bank accounts or obtaining insurance policies.
- Potential employers may check your credit report and turn you down for jobs.
To explore strategies for avoiding default, see "What If I Can't Pay My Student Loans?"
If your loans are already in default, see "How to Get Out of Student Loan Default."
If your student loans have been sent to a collection agency, see "How to Deal With Student Loan Collection Actions."