Understanding Federal Student Loan Default

If a federal student loan borrower misses a scheduled payment due on a student loan, the loan becomes delinquent.  If the loan remains delinquent for 270 days, the loan will go into default.


The consequences of default can be severe:

  • The entire unpaid balance of the student loan and any interest becomes due and payable.
  • The borrower loses eligibility for deferment, forbearance, and repayment plans.
  • The borrower loses eligibility for additional federal student aid.
  • More than likely, the defaulted student loan will be assigned to a collection agency like GC Services.
  • The loan holder will report the defaulted status of the loan to the consumer reporting agencies, meaning the defaulted student loan will show up on the borrower’s credit report. 
  • The borrower’s federal income tax refund may be withheld through Treasury Offset. This means that the Internal Revenue Service can seize the borrower’s federal income tax refund and apply those funds to the balance of the defaulted student loan debt.
  • The borrower’s student loan debt will increase because of late fees, collection costs, and any other costs associated with the collection process.  In addition, interest will continue to accrue.
  • The Department of Education or Guaranty Agency holding the defaulted student loan can direct the borrower’s employer to withhold money from the borrower’s disposal pay and apply those funds to the outstanding balance of the defaulted student loans.  This process is called Administrative Wage Garnishment.
  • The loan holder can take legal action against the borrower to obtain a civil judgment for the amount of the balance owed on the defaulted student loan, as well as fees, costs, and interest.

We offer solutions to getting your student loans out of default. Contact us to discuss which solutions may be available to you for your student loans.