What Happens When You’re Defaulting on Student Loan? Here’s the Answer!

defaulting on student loan

Higher education is becoming more and more expensive and many students must take out loans to pay for it. Although student loans are frequently considered an essential investment in one’s future, the pressure of repaying them can be extremely heavy. Unfortunately, some borrowers discover they are unable to repay their loans, which leads to default. The consequences of defaulting on student loans will be discussed in this article, along with the harsh reality that borrowers must deal with when they find themselves in this predicament.

What is Student Loan Default?

When a borrower doesn’t make payments on time in accordance with the terms and conditions of the loan arrangement, they are in default on their student loan.

Depending on the type of loan—federal or private—and the particular conditions stipulated by the lending institution, the effects of default can differ. However, defaulting on student loans can have serious and enduring repercussions regardless of the type of debt.


Steps Leading to Defaulting

As soon as a payment is missed, the process of defaulting on your federal student loans begins. The three phases that result in default are as follows:

  • Your federal student loans are regarded as delinquent on the first day following a missed payment, and late fines may apply.
  • After 90 days or longer without making a payment: Your loan servicer notifies the three major credit bureaus about the delinquent account, which means it will show up on your credit report and potentially lower your credit score.
  • Your federal loan enters default after 270 days, or nearly nine months, of late payments, and your debt may be collected.

Consequences of Defaulting

If you’re defaulting on your student loans, here are the consequences that you might have to face:

Financial Consequences

The damage to credit scores is one of the immediate repercussions of defaulting on a student loan. When borrowers don’t make payments, their credit rating declines, making it more challenging for them to get financing for future projects, like purchasing a home or a car.

The borrower’s financial options may be constrained by higher interest rates on any subsequent loans or credit cards brought on by a damaged credit history.

In the case of federal student loans, the government has powerful tools at its disposal to collect the debt. These may include wage garnishment, where a portion of the borrower’s wages is withheld, or the offsetting of tax refunds and federal benefits.

Private lenders may also pursue legal actions to collect the outstanding debt, which can result in wage garnishment or even lawsuits.

Diminished Career Opportunities

Making untimely payments on student loans might negatively affect a borrower’s ability to obtain a job in the future. Credit checks may be done throughout the recruiting process for some professions, such as those in the legal or financial sectors.

A bad credit history brought on by loan default can cast doubt on a person’s ability to manage their finances, which may prevent them from getting the job they want or limit their employment options.

Impact on Personal and Mental Health

Financial stress brought on by student loan default can have a serious negative impact on a person’s emotional and mental health. Relationships can be strained and anxiety and melancholy induced by ongoing concerns about debt, collecting calls, and future legal actions.

A person’s quality of life can be negatively impacted by a load of unpaid student debts, which can also cause sentiments of hopelessness and despair.


Strategies to Avoid Default

  • In order to avoid going into default on their student loans, students should look into their choices, including income-driven repayment plans, debt consolidation, and deferral and forbearance programs.
  • It is imperative to communicate with lenders; depending on the borrower’s financial condition, they could be ready to work out a more reasonable repayment schedule.
  • To avoid default and lessen its effects, it is crucial to investigate repayment choices, look for financial support, and keep the lines of communication open with lenders. 
  • In the end, prudent borrowing and money management can assist people in overcoming the difficulties of student loan repayment and securing their long-term financial security.

Student loan default is a major issue that may have a long-term impact on a borrower’s personal and financial situation. Students and recent graduates must be aware of the possible repercussions and take proactive measures to prevent default. 



Q1. What occurs if a student fails to repay a loan?

Ans. Private loan default penalties differ from lender to lender and can include sending your debt to a third-party collection agency or having your late payment reported to the credit bureaus.

Q2. If student debt is in default, will it be forgiven?

Ans. No one of our student loan forgiveness programs will forgive defaulted loans. You can escape default status, though, if you choose Fresh Start. After that, you’ll be able to reapply for forgiveness schemes like Public Service Loan Forgiveness.

Q3. How do I get my student loan out of default?

Ans. Your federal student loans can often be rehabilitated to prevent default. It’s also the greatest approach, for many borrowers, to prevent the default from having a long-term effect on your credit scores. 

To know more about the loan application process, and the best bank accounts for students or international money transfers, subscribe to Fly. Finance or reach out to our experts to help ease your study abroad experience.

About Heena Pahuja

Leave a Comment

ICICI Bank Education Loan to Study Abroad Baroda Yoddha Education Loan to Study Abroad Top 5 Benefits of SBI Zero Balance Account for Students Eligibility Criteria for Aditya Birla Capital Education Loan to Study Abroad Auxilo Education Loan for Wards of Defence Personnel Steps Involved In Canara Bank Education Loan Processing Time IBDI Education Loan Documents Required Checklist Education Loan Interest Rate Comparisons: Banks vs. NBFCs Indian Army Education Loan to Study Abroad: Know It All Here Process and Ways to Obtain Gap Certificate for Education Loan

Send Money Abroad in <15 mins


Request a callback


Get an education loan at the lowest interest rate


Thank you! Your call request has been submitted

Our team will connect with your shortly

aero Confused which education loan is the best for you?