What is default?
Default occurs when you have made no payments on your student loan for at least 270 days. When you default you have violated your loan agreement, and the lender or servicer can request immediate payment in full.
You may default for any number of reasons, including:
- The monthly payments are too high.
- You earn an insufficient income.
- You have expensive medical bills.
- You want to save some money.
- You can’t find a job.
If you are delinquent on your student loan payments, you should contact your lender or guaranty agency. They will work with you to arrange a repayment option that is best for your financial situation.
By managing the repayment of your student loans, you can meet your responsibilities, avoid financial problems, and help make sure that you have a clean financial record.
What are the consequences of default?
- Higher interest or denial of credit - Your credit history can be seriously damaged if you default on your student loan. This damage to your credit can affect the interest rate on future loans you are offered(including car loans and home loans) and can result in denial of credit opportunities you will receive.
- Collection fees and costs - When you have defaulted on a loan, you are charged additional collection fees and costs associated with collecting your loan. These costs can substantially increase your loan balance.
- Wages garnished - Under student loan rules, a certain percentage of your income may be withheld from your pay and sent to your loan holder to reduce the amount of your defaulted student loan.
- IRS funds withheld - If you default on your student loan, your loan holder can seize your tax refund and other federal payments to which you are entitled and apply them to your outstanding loan balance.
- Legal action - In extreme circumstances, the holder of a defaulted loan may take legal action against you to force you into repayment.
- Professional license withheld - You may be unable to renew your professional license (e.g., cosmetology, real estate, medical). To have the license reinstated, you must have established a repayment arrangement with your loan holder.
- No more federal financial aid - If you default on your student loan, you will be ineligible for any further federal financial aid unless you make and fulfill satisfactory repayment arrangements with the holder of your defaulted loan.
I defaulted. Now what?
Contact your guaranty agency, which becomes the holder of your defaulted loan. The guaranty agency can counsel you about the best options for resolving your default.
Establish a new repayment agreement by:
- Reinstating your eligibility for federal financial aid by making six consecutive, on-time, full, voluntary monthly payments to the holder of each defaulted loan.
- Rehabilitating your defaulted loan(s) by making nine consecutive, on-time, full, voluntary monthly payments to the holder of each defaulted loan.
- Consolidating your defaulted loans by making three consecutive, on-time, full, voluntary monthly payments to the holder of each defaulted loan.
Stick to your repayment agreement. You can get back on track by establishing a good repayment habit.
If you’re still a student and need additional financial aid, apply as early as possible. By having your financial aid application data on file, your school can award you as soon as your eligibility for federal financial aid is reinstated.