Consequences of Default and Default Prevention
What Is Default?
If you miss your regular student loan payments and do not
contact your lender or servicer to make alternative arrangements,
your loans will be considered delinquent.
If you have a delinquent loan, at first you will receive letters
and phone calls offering help and information. However, this
contact will become demanding and get to be a hassle if you
continue to miss payments or ignore the contacts. The callers are
not being mean. They are required by federal regulations to contact
you by letter and phone.
You cannot afford to miss any payments without talking to your
lender or servicer. If you continue in a delinquent status without
paying for 270 days (for monthly payments) or 330 days (for less
frequent payments) and without resolving the issue with your lender
or servicer, the guarantor of your loan will conclude that you no
longer intend to repay the loan and will place it in a default
What Happens if I Default?
The consequences of defaulting on your student loan can be
severe. Here are some of the things that could happen:
- You can be sued for the amount you owe, and you will have to
pay court costs and attorney fees.
- Your credit rating will be damaged, which means in the future
you may not be able to get a credit card or borrow money to buy a
car or a home.
- Any federal or state payments due to you, including income tax
refunds and lottery winnings, could be automatically directed to
pay your loan debt.
- Your wages at your job may be garnished. That means part of
your paycheck will automatically go to your student loan
- Your account may be referred to a collection agency, and you
will be responsible for paying collection charges.
- You cannot receive further federal financial aid until your
default situation is resolved.
- You could be denied assistance from federal benefit
- You will be ineligible for deferments, forbearances and
repayment plan options.
- You may be denied certain professional, occupational, business,
industry, recreational, and/or motor vehicle licenses. If you
already have a professional license, it could be suspended.
- You could receive demands for immediate payment of the entire
balance of your loan, plus any unpaid interest.
How Can I Avoid Default?
Communicate with your lender or loan holder. It's important that
you admit when you are in trouble or do not understand something
about repaying your student loans. When it looks like you might not
be able to make a student loan payment, call your lender or holder
immediately to discuss available options. Those options may
- Changing your repayment to better suit your situation
- Requesting a deferment or forbearance to temporarily postpone
- Requesting a loan consolidation to lower your monthly
- Seeking advice from a Counseling Service
Here are some other tips to help keep you out of default
- Make your loan payments on time.
- Set up your loan for electronic withdrawals from your bank
- Take advantage of any repayment benefits offered by your lender
- Notify the holder or servicer immediately if you change your
address, name or any contact information.
- Keep copies of all records related to your student loans.
Defaulting is bad for you, your lender, your guarantor, your
college or university and taxpayers. There are many resources
available to help you. All you have to do is ASK!