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What does it mean to default on a student loan?

For federally guaranteed student loans under Title IV of the Higher Education, a default occurs when you fail to make payments on your loan for (a) 180 days if you repay in monthly installments or (b) 240 days if the payments are due less frequently. During the time that you are behind in your payments, your lender must exercise “due diligence” (make repeated efforts to find you and contact you about repayment) in attempting to collect the loan from you. If the lender is unsuccessful, it will usually place the loan in “default” and turn it over to the “guaranty agency” in your state. Lenders may “accelerate” a defaulted loan, which means that the entire balance becomes due in a single payment.

What are the consequences of defaulting?

Borrowers who fail to make a payment on time are considered delinquent on their Direct Consolidation Loans. Borrowers who do not make payments for 270 days are in default. Defaulting has severe and long-lasting consequences, as follows:

  • The Department of Education can immediately demand repayment of the total loan amount due.
  • The Department of Education will attempt to collect the debt and may charge collection costs.
  • The Department of Education reports defaulted loans to national credit bureaus, damaging borrowers’ credit ratings and, making it difficult for borrowers to make purchases such as cars or homes.
  • Borrowers with loans in default are ineligible for Title IV student aid.
  • Borrowers with loans in default are ineligible for deferments
  • The Internal Revenue Service can withhold borrowers’ Federal income tax refunds.
  • Borrowers’ wages may be garnished.

It is important that borrowers with Direct Consolidation Loans stay in touch with the Direct Loan Servicing Center. Default can occur when borrowers fail to keep the Direct Loan Servicing Center up to date on address and name changes, causing billing statements to go astray. In addition, the Direct Loan Servicing Center can offer alternatives when borrowers have trouble making monthly payments. Borrowers may apply for a deferment or forbearance, or change repayment plans.


How can I escape default?

There are generally three things to do to avoid or escape defaulting on a student loan when you are unable to pay. They are:

  1. cancel or discharge (end your obligation to repay) the loan,
  2. renew or consolidate the loan into a new loan, or
  3. temporarily stop making payments.


I can’t afford my loan payment. What are my options?

There are other repayment options that might better suit you, such as an Income-Based, Graduated, or Extended repayment options.  Give us a call and we can take a look at your options.

How long does it take to get out of default?

On average it only takes 4-8 weeks to remove your loans out of a default status.