Student loan default happens when you fail to make payments on your loan for a set period, usually 270 days for most federal student loans. Defaulting on your loan is serious and can trigger a chain of financial consequences that affect your credit, income, and even career options.
Many borrowers don’t realize how quickly missed payments can turn into default. The default status can sneak up on you, especially if you’re experiencing hardship or having trouble making payments. That’s why it’s critical to act quickly at the first sign of difficulty.
Federal student loans are those funded and guaranteed by the U.S. Department of Education. These include:
Most federal student loans come with borrower protections like income-based repayment plans and loan rehabilitation options, but those protections can disappear if your loan goes into default.
A defaulted loan is a loan that has been overdue long enough to be considered in violation of the loan agreement. For federal loans, this usually means no scheduled payment has been made for 270 days. At that point, your loan holder may report your default to credit bureaus, trigger wage garnishment, or send your loan to a collection agency.
The good news is that defaulted student loans can be resolved. The key is to know your options and take action quickly.
Loan rehabilitation is one of the most powerful tools available to help borrowers get out of default. Through rehabilitation, you agree to make a series of on-time, affordable payments, usually nine payments within ten months. Once completed, the default is removed from your credit report.
Here’s how it works:
This is typically a one-time opportunity, so it’s important to get it right.
Private student loans don’t follow the same rules as federal loans. If you default on a private student loan, your lender can take faster and more aggressive action. This might include:
Unlike federal loans, private loans generally don’t offer rehabilitation programs. However, some lenders may allow you to settle, set up payment options, or apply for hardship relief.
Loan consolidation can help you resolve a defaulted loan, but it works differently than rehabilitation. When you consolidate:
This option gets you out of default faster, but it doesn’t remove the default from your credit report like rehabilitation does.
Defaulting on your student loans can lead to serious consequences that affect many parts of your financial life. These can include:
In some states, defaulting could even put your professional license at risk. This means that people in fields like healthcare, teaching, or real estate might lose their right to work.
The Consumer Financial Protection Bureau also provides a helpful overview of what happens when you default on federal student loans.
Perkins loans are a special type of federal student loan once offered to low-income students. Though no longer issued, many borrowers still carry Federal Perkins Loans with school-based servicing.
If you default on a Perkins loan:
Perkins loans are eligible for rehabilitation, but you must act quickly to avoid long-term damage.
If you have Direct Loans, they are serviced by companies assigned by the Department of Education. These servicers are your point of contact if you’re facing a student loan default or trying to avoid defaulting in the first place.
According to StudentAid.gov, you should contact your servicer immediately if you’re behind on payments. They may be able to help you set up a new due date, switch to an income driven repayment plan, or explore loan consolidation.
To help you stay current on your loans—or return to good standing after default—you can explore income driven repayment plans (IDR). These plans adjust your monthly payments based on your family size and income. This helps struggling borrowers avoid missing payments and potentially regain eligibility for federal aid programs.
After rehabilitation or consolidation, IDR plans can help you stay out of default for good. They also cap interest payments and may forgive your remaining balance after 20–25 years of repayment. If you’re not eligible for income-based plans, you may qualify for a forbearance period, which temporarily pauses your payments but allows interest to continue accruing.
One of the worst parts of student loan default is the long-lasting damage to your credit history. Your missed payments and default status will appear on your credit report, potentially for seven years or more.
This hurts your chances of:
Because student loan default can impact credit bureaus, it’s important to take action quickly and avoid defaulting if at all possible. Under the Higher Education Act, federal student loan defaults can remain on your credit report for up to seven years, impacting your long-term borrowing ability.
Once your federal loan is in default, the federal government can garnish your wages or take your government payments like tax refunds or even other government payments such as Social Security (in limited cases). You may not receive a warning before this happens.
Unlike other types of debt, federal student loans don’t require a court order to start garnishment. Your loan holder can simply inform your employer and begin withholding from your paycheck.
You may also face collection costs or fees from the default resolution group if your account is assigned to a collection agency.
Many borrowers are surprised to learn how far-reaching the effects of default can be. These include:
Even most borrowers who are well-intentioned can stumble if they don’t act fast. Repaying student loans is a long-term commitment, but it doesn’t have to wreck your financial future if you plan wisely.
Once your loan is in default, your account may be transferred to a collection agency. These agencies can be aggressive, using tactics that increase your collection costs and make repayment even harder.
They may:
This can make your repayment total much higher than your original loan balance, especially if you have private student loans.
Private lenders operate differently than the federal government. If you default on a private loan, they may take quicker legal action and offer fewer solutions.
However, you can still:
If you’re unsure who holds your loan or how to proceed, a student loan counselor can help you navigate your next steps.
If you’re trying to resolve defaulted loans, you don’t have to do it alone. Organizations like Credit.org offer free student loan counseling to help borrowers understand their options and communicate with their loan servicer. Not sure how to start the conversation? Our guide to talking to student loan officers and collection agents can help you prepare.
Counselors can:
Before entering loan rehabilitation, you’ll need to sign a new promissory note agreeing to make a series of on-time payments as part of your recovery plan. Learn how to avoid student loan default with proactive strategies from StudentAid.gov.
Many struggling borrowers say that talking to a professional was the turning point in getting out of default.
According to recent data from EducationData.org, around 9% of federal student loan borrowers eventually default. While that may sound low, it still represents millions of people. Today, more than 7.5 million Americans are in default on their student loans. If you’re unsure how widespread the crisis is—or where you fit in—read our crisis guide for student loan borrowers.
Some borrowers fall into default because they didn’t know what payment plans were available, or they misunderstood the consequences of late payments. Be sure to read our list of the top 10 student loan mistakes to avoid so you don’t fall into the same traps.
And defaults are rising again as repayment resumes after COVID-related pauses. The federal government has started to resume collections, including garnishments and tax refund offsets, for borrowers who remain in default. The U.S. Department of Education recently announced that collections would resume in stages, as noted in this press release.
It’s important not to wait for forgiveness programs to erase your debt. While some public servants qualify for PSLF or IDR forgiveness, these programs take years to complete, and don’t apply if you’re already in default.
If you lose eligibility for federal aid or are counting on future policy changes, that’s a risky plan. Focus on what you can do today to improve your situation, like rehabilitation or consolidation.
In some states, being in student loan default can jeopardize your ability to work. This is especially true for borrowers who require a professional license, such as teachers, nurses, real estate agents, or cosmetologists.
Losing your license means losing your income, which can trap you in a cycle that makes student loan payments even harder. While many states have ended this practice, some still allow it.
Defaulting on student loans can feel overwhelming. But there’s always a way out. Whether you’re facing late payments, dealing with a collection agency, or trying to regain eligibility for aid, there are proven steps to recover.
Start by learning your loan type (whether direct loans, federal perkins loans, or private student loans) and contacting your loan holder or servicer immediately.
Explore your repayment options, and don’t wait for a court order or wage garnishment before taking action.
If you’re in default—or just trying to avoid it—the most important thing you can do is talk to someone. A trained counselor can explain all your options, from income driven repayment plans to loan rehabilitation, and help you choose the best path forward.
When you’re ready to take the next step, sign up for free Student Loan Counseling from Credit.org. Together, we’ll help you get out of default, protect your credit history, and reclaim your financial future.
