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Consequences of Default

If you fail to make payments on your student loans you will go into default.  Defaulting on your student loans is a serious financial mistake. Like any other debt, these loans are important financial and legal obligations. Consequences of default can include:

  • A report to all national credit bureaus that your loan(s) has defaulted, which will damage your credit rating. Student loan default scores one of the worst credit ratings and ranks right up therewith foreclosures, repossessions, and charge-offs.
  • Loss of eligibility for further state and federal student aid if you decide to go back to school.
  • Loss of eligibility for deferments, forbearances, and repayment plan options.
  • A demand for immediate payment of the entire balance of your loan, plus any unpaid interest.
  • Your defaulted loan account may be turned over to a collection agency.
  • Assessment of collection costs of up to 25 percent of your loan’s outstanding principal and interest balance.
  • The possibility of being sued by your guarantor or the U.S. Department of Education.
  • Withholding of federal and state income tax refunds, lottery winnings and federal Treasury payments such as Social Security payments.
  • Garnishment of up to 15 percent of your disposable income.
  • Loss of a professional, occupational, business, industry, recreational, and/or motor vehicle license.
  • Official academic transcripts may be withheld.

Avoiding default

The key to avoiding default is to borrow responsibly, set up a budget before you go into repayment so you are prepared for your loan payment, and keep an open line of communication with your loan holder. Contact your loan holder at the first sign of trouble.

  1. If I fail to make required payment or satisfactory arrangements with my lender, I will be in default
    • True
    • False
  2. Default will not impact my credit rating
    • True
    • False