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Consequences of Default and Default Prevention

There are a number of things to consider when it comes to repaying your federal student loan. Find out when repayment for your loan, or loans, starts, how to make your payment, repayment options available to you, and what to do if you have trouble making payments.

What Is Default?

If you miss your regular student loan payments and do not contact your loan servicer to make alternative arrangements, your loans will be considered delinquent. The point when a loan is considered to be in default varies depending on the type of loan you received.

What Happens if I Default?

The consequences of defaulting on your student loan can be severe. Here are some of the things that could happen:

  • The loanholder can take you to court and you will have to pay court costs and attorney fees.
  • Your credit rating will be damaged, which means in the future you may not be able to get a credit card or borrow money to buy a car or a home.
  • Any federal or state payments due to you, including income tax refunds and lottery winnings, could be automatically directed to pay your loan debt.
  • Your wages at your job may be garnished. That means part of your paycheck will automatically go to your student loan payments.
  • Your account may be referred to a collection agency, and you will be responsible for paying collection charges.
  • You cannot receive further federal financial aid until your default situation is resolved.
  • You will be ineligible for deferments, forbearances and repayment plan options.
  • You could be demanded for immediate payment of the entire balance of your loan, plus any unpaid interest. This is called "acceleration".
  • Your school may withhold your academic transcript until your defaulted loan is resolved. The academic transcript is the property of the school and it is the school's decision, not the U.S. Department of Education's nor your load holder's decision whether to release the transcriptto you.

How Can I Avoid Default?

Communicate with your loan servicer. It's important that you admit when you are in trouble or do not understand something about repaying your student loans. When it looks like you might not be able to make a student loan payment, call them immediately to discuss available options. Those options may include:

  • Changing your repayment to better suit your situation
  • Requesting a deferment or forbearance to temporarily postpone payments
  • Requesting a loan consolidation to lower your monthly payments
  • Seeking advice from a Counseling Service

Here are some other tips to help keep you out of default status:

  • Create a budget to determine how much you really need to borrow.
  • Make your loan payments on time.
  • Set up your loan for electronic withdrawals from your bank account.
  • Take advantage of any repayment benefits offered by your loan servicer.
  • Notify the loan servicer immediately if you change your address, name or any contact information.
  • Keep copies of all records related to your student loans.

Defaulting is bad for you, your lender, your guarantor, your college or university and taxpayers. There are many resources available to help you. All you have to do is ASK!


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OCAP believes that financial literacy and understanding the financial aid process are critical aspects of college planning and student success. OCAP staff who work with students, parents, educators and community partners in the areas of personal finance education, state and federal financial aid, and student loan management do not provide financial, investment, legal, and/or tax advice. This website and all information provided is for general educational purposes only, and is not intended to be construed as financial, investment, legal, and/or tax advice.