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I Defaulted on my Student Loans. What Happens Next?

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You may not like having to make student loan payments, but you don’t have much of a choice: Not paying your student loans has some pretty severe consequences that can follow you for years. Here’s what happens when you don’t pay your student loans.

What Is Defaulting on a Student Loan?

If you’ve defaulted on your student loan, that means you’ve failed to repay your loans as agreed. That could involve several things: You’ve gone too long without making a payment, you’ve violated terms and conditions of the loan or you fraudulently obtained a student loan. The entire unpaid loan balance — not just the payments you’ve missed — immediately comes due and your lender may take a variety of measures to collect the debt.

You have to go a very long time without making a loan payment to go into default. For federal student loans (the most common kind of education debt), your loan goes into default after you’ve gone 270 days without making a monthly payment. That’s nine monthly payments. If you have a private student loan, you can check your loan paperwork to find out exactly what constitutes default, but it generally happens more quickly than with federal student loans.

What Happens Once You Default on a Student Loan?

If you’ve reached the point of default, you’ve probably received several calls and letters from your student loan servicer asking you to pay up. You can expect more of that because your defaulted loan will be assigned to a debt collector. Your lender may even sue you over the unpaid debt. You can also expect the amount of money you owe to increase, not only because of interest but because you’ll be charged fees for any debt collection or legal activity related to your default.

Some other things you should know: If you default on a federal student loan, you’ll lose access to the benefits that came with it, including eligibility for deferment, forbearance and the variety of repayment plans the government offers. You also won’t be able to get additional federal education aid. So if you want to go back to school and your loans are in default, you’ll have to pay your own way unless you get those loans back to good standing.

The consequences go beyond the world of student loans. In addition to the missed payments that likely led to your default, your lender can report the default to the major credit bureaus, further damaging your credit. Payment history is the most influential aspect of your credit scores, so a slew of late payments and a loan default can really trash your credit, making it difficult to rent or buy a home, take out an auto loan or even get a credit card. (You can see how your student loans are affecting your credit by reviewing two of your free credit scores on Credit.com.) On top of that, the government may seize your federal or state tax refund and garnish your wages.

Defaulting on a private student loan has similar consequences: collection activity, legal action and credit damage. If you have a cosigner, they’ll also be subject to these actions. If the lender sues you over the unpaid balance and receives a judgment against you or your cosigner, they could come after you for your paycheck, property or other assets.

How Do I Get Out of Student Loan Default?

Federal loan borrowers have three options for getting out of default: Repaying the unpaid loan balance in full, entering a loan rehabilitation agreement with the Education Department or lender or consolidating the loan in default.

Federal loan rehabilitation is a one-shot deal, but it can be a good one. If you adhere to the terms of the agreement, the default will be removed from your credit reports with the three major credit reporting agencies, which can improve your credit. The missed payments that led to the default will remain on your credit reports.

If you’re worried about being able to afford loan payments under a rehabilitation agreement or loan consolidation, keep in mind you can qualify for low monthly payments under an income-driven repayment plan. You can read more on the details of federal loan rehabilitation and loan consolidation here.

Since your entire unpaid loan balance comes due when you default, you can get out of a defaulted private student loan by paying it off. That’s an unlikely scenario, given that your inability to make monthly payments is what led you to default in the first place, but theoretically it’s an option. Beyond that, you can try contacting your lender to ask about options for getting out of default. You’ll remain in default until you’ve repaid the loan, and federal and private education loans are rarely discharged in bankruptcy. (It’s possible, but not easy.) Private education loans, however, are subject to statutes of limitations, meaning there’s a point at which it’s illegal for a lender or collector to sue you over an unpaid debt. Here’s a list of statutes of limitations by state.

Bottom line: Avoid default if you can. As soon as you think you might have trouble making student loan payments, contact your student loan servicer about your options for making those payments more affordable. And remember, student loan repayment has a significant impact on your credit standing — and various aspects of your day-to-day life — so you’ll want to stay on top of it.

This article has been updated. It was originally published January 20, 2017.


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