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Chapter 5: Default

A loan is considered in default if you don’t arrange a deferment or forbearance and are more than 270 days past due. The consequences of default are severe and can include aggressive collection tactics, tax refund interception, lawsuits, and non-judicial garnishment of up to 15% of your net wages. You will also be ineligible for deferment, alternative repayment plans, grants, and new student loans. Collection fees, which can be significant, will be added to your balance. Additionally, a default notation will appear on your credit report, and since there is no statute of limitations on student loans, the negative impact may follow you indefinitely if you continue to not pay.

For federal student loans, you have a one-time right to get out of default with a “reasonable and affordable repayment plan”. You and the current loan holder should work together to determine what amount is reasonable and affordable. If they want you to pay an amount you feel you cannot afford, be persistent in pushing for an amount that you are comfortable with – it may be helpful to send them a copy of your budget. Once you make nine on-time payments (for Direct and FFEL loans you are permitted to miss one payment; for Perkin loans you are not) your loan is rehabilitated, i.e., taken out of default. The default notation will be removed from your credit report, and the other consequences of default will also no longer apply. As discussed above, consolidation is another way to get out of default. (This will not remove the default notation from your credit report, though – it will show that the loans were paid off but defaulted at one time.)

For many people, graduating from college is the start of their adult life – and a ten-year-or-more relationship with the student loans. By knowing about and using the opportunities available to you, you can make the relationship as painless as possible.


  • National Student Loan Data System
    Allows borrowers to look up information about their Title IV federal student loans

  • Federal Student Aid Information Center/Student Aid on the Web
    Provides information on federal student loans

  • Direct Loan Servicing Center
    Allows borrowers with Direct loans to make payments online and manage their account

  • Department of Education’s Default Resolution Group
    Provides information on defaulted student loans

  • Federal Direct Consolidation Loans Information Center
    Provides information on the Direct consolidation loan program

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