What Happens if You Default on Your Student Loans?

Chris AlexisUpdated January 9, 2023

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Defaulting on student loans can lead to serious penalties that include late fees, a damaged credit score, garnished wages, and the suspension of your professional license. There are ways to recover from default, but it should be avoided as much as possible.

What Is Student Loan Default?

When you take out a student loan, you make a binding agreement to pay it back. That agreement is attached to a timeline and other terms. Defaulting is when you don’t make those payments as promised.Black college graduates are more likely to default on their student loans than white borrowers on average, according to student debt and racial wealth gap data. Different types of loans have different timelines. Make sure you know the details of yours.

Federal Student Loan Default

If you have a federal student loan and are past due by 270 days (that’s about nine months), you are in default. For those with Federal Perkins Loans, you may be treated as having a default student loan immediately if you fail to make any scheduled payment by the due date.The Federal Perkins Loans program has ended. The original program was designed for both undergraduate and graduate students who showed a strong financial need. As of mid-2021, about 1.6 million borrowers collectively still owe about $4.7 million.

Private Student Loan Default

According to the Consumer Financial Protection Bureau, private student loans can be in default after only 90 days (that’s three missed payments). Other ways to default include declaring bankruptcy or defaulting on another loan. Afterward, they will report this to the credit bureaus, and this will negatively impact your credit score.The lenders may attempt to collect directly or hire an outside agency to get you to pay what you owe. You could even find yourself in court. It is important that you read your private loan contract and understand the rights you’re granted.

How Long Does It Take to Default?

Different loans have different terms when it comes to default. As mentioned above, your federal loan is in default after 270 days. Private loans often fall into default at 90 days.It is imperative that you’re familiar with your agreement. If you’re unsure, go back today to those documents.Contact your lender immediately if you have misplaced those documents and ask for a copy. A pinch of potential embarrassment is worth it to escape defaulting.

Student Loan Delinquency vs Default

You’re delinquent after a single missed payment. That’s (often) the first step on the path to a defaulted student loan. Typically, your lender won’t report any late payments to credit bureaus until after 90 days.

What to Do If Your Student Loans Go Into Default

If you have a federal student loan and you’ve fallen into the pit of default, the Department of Education has three ways to help:Repayment: This is when you want to get out of debt entirely. When you go into default, the entire balance of the loan becomes due. Can’t write a check that large? You might be able to negotiate a student loan settlement.(For federal loans, the government may be willing to waive 100% of collections costs, or 50% of interest owed, or 10% of principal and interest. Different private lenders will accept different terms: You may only have to pay back between 50% to 80% of the original balance. Talk to your lender.)Rehabilitation: Student loan rehabilitation will wipe out the default from your credit score. If you missed earlier payments, those black marks will remain. To qualify, make nine monthly loan payments over the course of 10 consecutive months. The payments will be 15% of your discretionary income, but you can ask for a lower amount. And you can only rehabilitate once.Consolidation: If paying off your student loan in full isn’t possible and you want to escape default with speed, student loan consolidation is another option. If you have multiple federal loans, you can combine (consolidate) them into a single loan. If you have a private loan, you’ll have to speak with your lender about details. They might have similar options. If your back is against the wall, consider connecting with a lawyer who specializes in student loans. They may be able to offer critical guidance.

Ways to Avoid Going Into Default

One important tactic is to understand your student loan agreement. Know how much you’re going to borrow and what you can afford to pay back. How large of a loan do you really need? Create a budget and figure out what you will and will not be able to afford for repayments.You can track your federal loans online. Also keep good records and reach out to your lender if you foresee trouble making payments ahead of time. Ask what options they offer.

Refinancing Student Loans

Refinancing means you approach a private lender about paying off one or all your current loans, and they in turn give you a new loan—which may have a different rate and timeline for repayment.It’s important to know the risks and benefits to refinancing your student loans. For example, you could have a potentially lower interest rate, which means you’ll end up paying less over the lifetime of the loan.But private lender refinancing means you’ll be ineligible for federal programs–ranging from income-driven repayment plans, Public Service Loan Forgiveness, and protections like federal deferment and forbearance options–for the amount that is being refinanced.

Grants to Pay Off Student Loans

When dealing with how to get student loans out of default, comb through potential grant opportunities. Check with your employer, organizations you’re involved with, and volunteer groups. Grants for doctors, nurses, and other healthcare professionals include:National Health Service Corps offers up to $50,000 to pay off your student loans if you agree to work two years, full-time, in a high-need community. There is also potential reimbursement for part-time work.With the Nurse Corps Loan Repayment Program, registered nurses who work at least two years in a critical-shortage area can have 60% of their student loan paid off. If they work a third year, they might receive an additional 25% in reimbursement.Earn up to $40,000 of your loans repaid through the IHS Loan Repayment Program if you sign up for two years of service in American Indian and Alaska Native communities. If you decide to stay longer, you could keep renewing your contract until your whole loan debt is paid.The Students-to-Service Loan Repayment Program is for those in their final year of medical or dental school. They can earn up to $120,000 to pay off loan debt by working for three years after graduation in an area with a shortage of medical professionals.What if you treat animals, not people? You can apply to the Veterinarian Medical Loan Repayment Program, which pays up to $25,000 annually toward veterinarian school debt if you agree to work in an area with a shortage of veterinarians for three years. Grants for teachers include:Using the Teacher Loan Forgiveness Program, you could earn up to $17,500 toward paying your loan debt for direct subsidized and unsubsidized loans (including Stafford loans). You would need to teach for five years in a low-income area.While the Perkins Loans program was canceled in 2017, you could get the full amount forgiven if you still have one and qualify for the Teacher Cancellation of Perkins Loans. This is for educators who teach in low-income communities. The other option is teaching high-needs subjects—like math, special education, science, bilingual education, or foreign languages.Grants for attorneys include:The John R. Justice Student Loan Repayment Program, which is designed for public defenders and state prosecutors. By agreeing to three to six years of service, you can get up to $10,000 per year ($60,000 in total) toward your law school loans repaid. Apply through your state. The Department of Justice Attorney Student Loan Repayment Program offers about $6,000 per year, up to $60,000, for attorneys who work in the Department of Justice and have federal student loan debt of at least $10,000. This is exchange for a three-year service obligation.The Herbert S. Garten Loan Repayment Assistance Program uses a lottery system and offers up to $5,600 in grants to attorneys with at least $75,000 in student debt.Researchers should check out the National Institutes of Health (NIH) Loan Repayment Programs. These are designed to lure medical professionals into certain research fields. Get up to $50,000 per year (for a total of two years) by agreeing to conduct research considered critical by the NIH. And guess what: You don’t have to work for the NIH to qualify.

Student Loan Forgiveness

Student loan forgiveness means you no longer need to repay part or the entirety of your defaulted loan. Look closely at your options. Examples include:Public Service Loan ForgivenessIf you are employed by a government or nonprofit organization, you may qualify. It forgives the remaining balance on your direct loans after you have made 120 monthly payments while working full-time in the public service sector.Teacher Loan ForgivenessYou could be eligible for up to $17,500 in forgiveness of your direct Loan or FFEL Program loans if you teach full-time for five complete and consecutive academic years in a low-income elementary school, secondary school, or educational service agency.Nurse Student LoansThe Nurse Corps Repayment Program covers up to 85% of unpaid nursing education debt for registered nurses, advanced practice registered nurses and nurse faculty. To qualify, you need to work for two years in either a “critical shortage facility” or an eligible nursing school as nurse faculty. There is also forgiveness of student loans for those with severe disabilities. You will need to provide documentation proving you’re considered “totally and permanently disabled.”

Student Loan Forbearance

With student loan forbearance, you (temporarily) don’t have to make your loan payments, or you can temporarily make smaller payments.It’s important to note that forbearance won’t lead to any progress toward either forgiveness or paying back the loan. And the interest accruing during your forbearance period doesn’t stop.General or Discretionary Forbearance: This may be an option if you are unable to make your student loan payments due to medical expenses, financial difficulties, employment change, or other reasons that the federal student aid office may allow. Mandatory Forbearance: This has different options where you will need to prove your eligibility. Potential fits include:

Serving in Americorps
Using the Department of Defense Student Loan Repayment Program
Serving in serving in a medical or dental internship or residency program
Being a member of the National Guard that has been activated by a governor
Being a teacher
The total amount you owe each month for all the federal student loans you received is 20 percent or more of your total monthly gross income, for up to three years

While in forbearance, you have two options:

Pay the interest as it accrues.
Allow it to accrue and then be added to your loan principal balance at the end of the forbearance period. This is called capitalizing.

If you don’t do either of these things, the total amount you will need to repay over the life of your loan may be even larger than before.

The Takeaway

Student loan default is never a good thing. It can have major repercussions. There are steps you can take if you do fall into default that can help you get back on your feet. But, of course, avoiding having a default student loan altogether is the best way to go.Refinancing is one option to keep default at bay. Be sure to educate yourself on student loan refinancing options. You’ll be able to find and compare opportunities, which can make a major impact on your repayment schedule.

Frequently Asked Questions

What happens if your student loans go into default?

Can defaulted student loans ever be forgiven?

Can you go to jail if you default on your student loans?

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About the Author

Chris Alexis

Chris Alexis has been putting pen to paper and fingertips to keyboard since his youth. He ultimately grew into an accomplished and award-winning writer who loves using the power of language to connect with audiences. He also strongly enjoys learning about who he is writing for so he can create something that will truly resonate with them. He has worked for a variety of companies, each of which have given him more experience and insight.

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