Borrowing + Not Paying = Default

girl with face buried in hands

You can't hide from your student loans.

If you are more than 270 days past due on your bill, you will go into "default". Default is really serious. Default means you failed to make payments on your student loan according to the terms of your Master Promissory Note (MPN), which is the binding legal document you signed when you took out your loan.

What happens if I default on my student loan?

Here are some of the bad things that can happen if you go into default:

  • Your entire loan balance will be due immediately - no more repayment plans.
  • Your wages will be garnished - up to 15% of your paychecks can be taken.
  • Loans cannot be discharged in bankruptcy.
  • Your tax refunds will be taken.
  • You will no longer be eligible for financial aid.
  • Your Social Security and disability income will be taken.
  • Collection fees will be added to your loan balance.
  • You may be unable to obtain or renew a professional license.
  • You are going to have a low credit score - a defaulted student loan is one of the worst entries that can appear on a credit report. Low credit scores mean that you may be denied car loans, home loans, apartment leases, checking accounts, and low-interest credit cards.

What can I do to fix a defaulted loan?

Don’t get discouraged if you are in default on your student loan.  There are ways to get out of default! The first thing to do is to contact the agency that is billing you. Explain your situation and ask them to work with you.

There are three ways to get out of default:

Loan Repayment

  • What is it? Paying off your defaulted loan in full.
  • Who is it for? This option is for someone who has access to enough money to pay the loan off in full. If you can afford it, this is the best option!
  • Perks of repayment: it's over and done with and you don't have to worry about it any more!
  • How to make it happen: Contact the agency that is billing you to learn where to send payments.

Loan Rehabilitation

  • What is it? An agreement between you and the Department of education to make affordable payments on your loan. Your loan is rehabilitated after you have made the agreed-upon payments for a certain length of time.
  • Who is it for? For people who want to get their loans out of default, but can't afford to pay in full.
  • Perks of rehabilitation: your loan will go back into normal repayment, and you are no longer in default.
  • How to make it happen: contact the agency that is billing you and tell them you want to rehabilitate your loans.

Loan Consolidation

  • What is it? Loan consolidation allows you to combine your student loans, creating a new single loan with a fixed interest rate. Your loan will be out of default after you have made several voluntary payments.
  • Who is it for? For people who have several loans and want to get out of default right away.
  • Perks of consolidation: your repayment period will longer with consolidation than it will be with rehabilitation, but you will only make one loan payment each month.
  • How to make it happen: contact the agency that is billing you and tell them you want to consolidate your loans.


The info on this page is a summary - see the Department of Education Repay Your Loans webpage for more.