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What Really Happens When You Default on Your Student Loans

June 9, 2015
Loans, Student Loans
What Really Happens When You Default on Your Student Loans
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As college costs continue to rise, more students are borrowing more to fund their education. In 2010, student debt exceeded credit card debt for the first time. According to the Consumer Financial Protection Bureau’s estimates, the outstanding student loan debt in the US hit $1 trillion in 2011.

With the balance of student debt topping $1 trillion, nearly one in 10 borrowers whose first repayments came due in 2009 defaulted in 270 days. But, do these borrowers know what happens when they don’t pay their student loans?

Loan default is the failure to make loan payments when they are due, and default usually occurs when the borrower fails to make a payment in 270 days. The consequences of defaulting on student loans can be very serious and long lasting. When you default on your student loans:

  • Your entire loan balances becomes due in full – no repayment plans.
  • You lose any eligibility for deferment or forbearance.
  • You are reported to the credit bureaus. Your credit score and future borrowing ability is negatively impacted.
  • Your loan balance increases due to new collection costs.
  • You are ineligible for future federal aid should you want to return to school.
  • Your wages, tax refunds and Social Security payments can be confiscated by the government until your loans are paid off in full.
  • Your lender can turn to private debt collectors to uncover unpaid student loans.
  • You can be sued.
  • Your student loans can’t be discharged for bankruptcy, unlike credit card debts and other loans.

If you’re in default, you should take action immediately and make sure to create a plan of action. Ignoring your student loans won’t make them go away. There are programs out there that can help you get out of default.

Loan rehabilitation allows you to work with your lenders to create a new loan repayment plan that is more reasonable and affordable. Loan consolidation allows you to consolidate your loans into a new single loan with a fixed interest rate. Research these options and work with your lenders to figure out what you can do to get out of default.


Student loan image via Shutterstock