What Is a Defaulted Student Loan?

Student Loan

A defaulted student loan is a loan for which the borrower has failed to make payments according to the agreed-upon terms. This usually occurs after 270 days of missed payments. Defaulting on a student loan has serious consequences, including damage to the borrower’s credit score, wage garnishment, and legal action.

What are the consequences of student loan default?

The consequences of defaulting on a student loan can be severe and long-lasting, including:

  1. Damage to credit score: Defaulting on a student loan can have a negative impact on the borrower’s credit score, making it harder to obtain loans or credit cards in the future.
  2. Wage garnishment: The government can garnish the borrower’s wages to repay the defaulted loan.
  3. Legal action: The government can take legal action against the borrower, including filing a lawsuit, to recover the money owed on the loan.
  4. Loss of tax refunds: The government can intercept the borrower’s tax refunds to repay the defaulted loan.
  5. Ineligibility for federal aid: Defaulting on a student loan may make the borrower ineligible for future federal financial aid.
  6. Difficulty obtaining employment: Defaulting on a student loan can impact the borrower’s ability to find employment, as many employers check credit history when making hiring decisions.
  7. Increased interest and fees: The borrower will likely owe additional interest and fees on the defaulted loan, which can significantly increase the total amount owed.

Do defaulted student loans go away?

No, defaulted student loans do not go away on their own. The debt associated with defaulted student loans can remain with the borrower for many years, even a lifetime, and can only be resolved through repayment or loan rehabilitation or loan consolidation. In some cases, the borrower may be able to have the loan discharged in bankruptcy, but this is a difficult process and not all types of student loans are dischargeable in bankruptcy. It’s important for borrowers to take action to resolve defaulted student loans to avoid the serious consequences of non-payment.

What happens if I don’t pay back my student loans?

If you don’t pay back your student loans, there can be serious consequences, including:

  1. Damage to credit score: Non-payment can result in a negative impact on your credit score, making it harder to obtain loans or credit cards in the future.
  2. Wage garnishment: The government can garnish your wages to repay the loan.
  3. Legal action: The government can take legal action against you, including filing a lawsuit, to recover the money owed on the loan.
  4. Loss of tax refunds: The government can intercept your tax refunds to repay the loan.
  5. Ineligibility for federal aid: Non-payment may make you ineligible for future federal financial aid.
  6. Difficulty obtaining employment: Non-payment can impact your ability to find employment, as many employers check credit history when making hiring decisions.
  7. Increased interest and fees: You will likely owe additional interest and fees on the loan, which can significantly increase the total amount owed.

It’s important to take action to repay your student loans, such as exploring alternative repayment plans or seeking loan rehabilitation, to avoid these consequences.

Do student loans get forgiven after 10 years?

Under the Public Service Loan Forgiveness (PSLF) program, some federal student loans can be forgiven after 10 years of qualifying payments, but eligibility for this program is specific and limited. To be eligible for PSLF, borrowers must:

  1. Have Direct Loans,
  2. Work full-time for a qualifying employer, which includes government organizations and non-profit organizations,
  3. Make 120 qualifying monthly payments, and
  4. Submit the Employment Certification Form annually to ensure they are on track for forgiveness.

If a borrower does not meet these requirements, they will not be eligible for loan forgiveness through the PSLF program. It’s important to note that not all student loans are eligible for PSLF, and other loan forgiveness programs may have different eligibility requirements and timeframes. It’s recommended to review your options and talk to a student loan specialist to determine the best path forward.

How do I know if my student loans are forgiven?

To know if your student loans are forgiven, you should contact your loan servicer and inquire about your loan forgiveness eligibility under the specific program you’re interested in. You can also check the status of your application for loan forgiveness through the Federal Student Aid website. If you are eligible for loan forgiveness, your loan servicer will inform you of the next steps to receive loan forgiveness, which may include submitting additional forms or documentation. It’s important to keep good records and communicate regularly with your loan servicer to ensure you are on track for loan forgiveness.