What Happens to my Student Loan Debt if I Default?

Struggling with your student loan debt? Having trouble making your payments? You're not alone.

More than 40% of borrowers aren't making payments right now. Unfortunately, student loan debt doesn't go away if you stop (or can't make) payments. Fail to make a payment for long enough, and you could default on your student loans.

What does default mean?

To understand default, let's back up a step and look at student loan delinquency. If you fall behind on your student loan payments, you're considered delinquent on your loan. This is true even if you miss just one payment.

delinquent
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You stay in delinquency until you make payments again. But if you stay delinquent for more than 270 days, the lender will determine that you defaulted on your loan.

What happens when you default on your student loan debt?

When you default on your student loans, you don't get to make it up by sending in payments again. The lender will send your debt to collections and your entire loan balance will be due all at once.

There are also several other things that will happen as financial consequences of defaulting on your debt:

  • In addition to owing the full balance of the loan, you'll owe additional fees. Any interest on the balance of the loan capitalizes and is added to the total you owe. You're also responsible for the collections costs.
  • You'll lose access to repayment plans and forgiveness programs if you default on federal student loans.
  • Default damages your credit score, which can take a lot of time and effort to repair.
  • Collections agencies can garnish your wages, income, tax returns, and other assets if you fail to start repaying the money you owe.

Again, paying back the debt in full can get you out of default. But that may not be an option -- especially with student loan debt that could total up to tens of thousands of dollars.

What to do if you default and can't pay off your debt

If you still have a big balance that you can't repay all at once, you can look into loan rehabilitation programs available through the federal government for federal student loan borrowers.

This is a great option if you can't afford your payments. Through these programs, your new student loan payment could be as low as $5 per month.

You can also call your lender and ask about your options. Some lenders may be willing to work with you to set you up on a new repayment plan. If your debt was sent to collections, you can call the collections agency and ask them about your options instead.