What To Know About Student Loan Default

Published on August 19, 2020, 7:59 am
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If you are facing a financial crisis, you may think to put aside payment of your student debt for a short period. Avoiding the repayment of your student loan however can lead you to loan default. This has long term and short term consequences, which you should know about before making any such decision.

When you are going through financial problems and unable to pay your debt, you need to be proactive and contact your loan servicer immediately. Simply putting a stop on paying your installments can affect your credit score negatively. It can cause a dramatic increase in your overall loan amount.

In addition, the added stress will most probably affect the quality of your work if still in school. If you manage to resolve some of the issues, related to your budget or loans as time passes by, you could get help with your academic essays due from custom essay writers to be sure in retaining the quality of your work and the level of your grades.

Here are a few things you must know before doing so.

1. Reported to Credit Bureaus

Once you are considered to have defaulted on your loan by your loan servicer, the loan default will be reported to credit bureaus. It will remain on your credit report for seven years.

This reporting will affect your credit score badly and you will be unable to borrow money from banks in the future. That borrowing can either be in the form of credit card debt and/or car and house financing.

This is why you always find a way out with the help of your loan servicer rather than holding repayment of the loan, that can lead you to default.

2. Liable for the Entire amount of Defaulted Loan

As soon as you default on your student loan, you become liable for its entire outstanding amount immediately. You are already going through financial crisis and this immediate repayment requirement will create more problems for you.

You will lose the option of any repayment plan when this happens and your interest will increase.

You have to pay the entire loan amount at once with no other option. Try to avoid defaulting on your student loan in any case.

3. Loan May be Sent to Collection Agency

You have defaulted your student loan already and unable to make any repayment arrangement with the loan holder. The loan servicer has no other option but to send your loan to a collection agency. These collection agencies have specialized in collecting defaulted loans.

The collection agency may offer you a repayment plan with a considerable increase in your amount or take other actions to recover the defaulted money.

4. Treasury Offset

If you are unable to agree on a repayment plan with your loan holder or fail to comply with an agreement reached you can be subject to the financial punishment of wage garnishment. This means you will lose all your social security benefits if you are getting anyone to offset the loan amount. You will not get any federal tax refund that is due.

5. Ineligible for Federal Student Aid

Once you have defaulted your student loan, you will be unable to get any financial help from any government agencies.

You will remain ineligible for Federal Student Aid until you repay the loan in full.


It is always better to seek help from your loan servicer rather than stopping the payments that can lead you into a default.

Jonas Bronck is the pseudonym under which we publish and manage the content and operations of The Bronx Daily.™ | Bronx.com - the largest daily news publication in the borough of "the" Bronx with over 1.5 million annual readers. Publishing under the alias Jonas Bronck is our humble way of paying tribute to the person, whose name lives on in the name of our beloved borough.