If you do not have a deferment or forbearance and you don't make any loan payments for 270 days on a federal loan or 120 days on an alternative loan (although it may be more or less, depending on the lender), your lender/loan servicer will take steps to place the loan in default.
Don't let this happen!
Default can have devastating consequences:
- You will incur collection costs (including attorney fees) of up to 25%.
- Your entire loan balance (and any collection costs) is immediately due in full.
- The government may keep your income tax refund and apply it toward your loan debt.
- Your employer may be legally obligated to forward 15% of your salary toward repayment of your loan.
- Federal debt collection procedures may be taken against you.
- You will damage your credit rating (default stays on your credit report for up to 7 years).
- You may lose your professional license.
- You will no longer be eligible for financial aid, including loans and grants.
- You will no longer be eligible for deferments of any type.
- The interest rate on your loan may increase.
The U.S. Department of Education or your lender may take legal action against you to force repayment of your debt.
What if your loan is already in default?
Help is available. Federal loans that have defaulted are eligible for a "rehabilitation" program. To successfully complete rehabilitation of your loan, you must:
- Set up a payment amount and schedule with your loan holder.
- Make a certain number of on-time payments.
Once your loan is rehabilitated, it is no longer in a default status:
- The default status is removed from your credit report.
- You regain eligibility for student aid, including loans.
- The benefits associated with your federal loans, such as deferment and forbearance, are reinstated.
- Any garnishment of wages and/or tax refunds will cease.
Please note that a loan may be rehabilitated only one time.
Contact your lender/loan holder to find out the details and get started on the path to rehabilitation or visit the Federal Student Aid website at www2.ed.gov. You want to get your loans in good standing and resolve the default on your credit report as soon as possible.
- If you're having trouble repaying your loans, don't wait until you fall behind to seek help.
- One missed payment does not equal default, but missed payments may appear on your credit history and may affect your ability to obtain credit.
- Your lender/loan servicer will make repeated efforts to contact you about any missed payments.
- Alternative (private) loans do not qualify for the same rehabilitation programs as federal loans. If you have defaulted on your alternative loans, contact your loan servicer to see what programs exist.