What Happens When Your Student Loans Go Into Default?

Falling behind on federal student loans can be stressful, particularly when you're not sure what happens next. Many borrowers know they're behind but aren't sure whether their loans are delinquent, officially in default, or already subject to collection activity.

The important thing to understand is that student loan default does not necessarily mean you're out of options.

Depending on your loan type, payment history, financial situation, and other circumstances, there may be options for addressing defaulted student loans and moving toward a resolution.

At Smart Loan Aid, we work with federal student loan borrowers at different stages of repayment, including borrowers who have fallen behind or whose loans are already in default.

When Does a Federal Student Loan Go Into Default?

For many federal student loans, default generally occurs after at least 270 days without making scheduled payments.

Default is more serious than simply missing a payment. Once a federal student loan enters default, borrowers may lose access to certain benefits and repayment options that would otherwise be available.

The loan may also become subject to federal collection activity.

This is why understanding the difference between student loan delinquency and student loan default is important. The options available to someone who recently missed a payment may be different from those available to someone whose loans have been in default for several years.

What Can Happen With Defaulted Student Loans?

Federal student loan default can have several consequences.

Depending on the circumstances, these can include:

• Negative credit reporting

• Collection activity

• Administrative wage garnishment

• Federal tax refund offsets

• Loss of access to certain repayment options

• Loss of eligibility for certain federal student aid benefits

For borrowers who have ignored their loans for a long period of time, collection activity can sometimes be the event that brings the issue back to their attention.

The possibility of student loan wage garnishment or having a federal tax refund withheld can make resolving the underlying default particularly important.

Can Defaulted Student Loans Be Resolved?

Yes. There are federal programs that may allow eligible borrowers to resolve a student loan default.

Common resolution strategies can include student loan rehabilitation and federal loan consolidation. In some circumstances, other options may also be relevant.

These solutions are not identical.

Rehabilitation generally involves completing a series of qualifying payments under a rehabilitation agreement. Consolidation involves replacing eligible federal loans with a new Direct Consolidation Loan.

Which approach makes sense can depend on the borrower's loan type, previous repayment history, prior use of rehabilitation, financial circumstances, and long-term repayment goals.

Smart Loan Aid helps borrowers review these factors and better understand which potential resolution paths may apply to their particular situation.

What Happens After the Default Is Resolved?

Getting out of default can be an important turning point.

Once eligible loans are successfully removed from default, borrowers may regain access to federal student loan benefits and repayment options that were unavailable while the loans remained defaulted.

This is why a good default resolution strategy should consider more than simply getting the loan out of default.

It should also consider what happens next.

A borrower may need to evaluate repayment options based on income, loan type, family size, remaining balance, and other circumstances.

At Smart Loan Aid, we believe understanding that bigger picture is an important part of evaluating a defaulted borrower's situation.

What If Your Loans Have Been in Default for Years?

Having loans that have been in default for several years does not necessarily mean there is nothing that can be done.

Many borrowers who seek help with defaulted student loans have been dealing with the issue for a significant period of time.

The important questions often become:

• What type of loans are involved?

• Who currently holds the loans?

• Has the borrower previously attempted rehabilitation?

• Is collection activity already occurring?

• What resolution programs may still be available?

• What repayment options could be available afterward?

The answers can help determine which potential strategies are worth exploring.

Understanding Your Options Can Make a Big Difference

Student loan default can feel overwhelming when you're receiving collection notices or trying to understand unfamiliar federal programs.

But default is a status that may be possible to resolve.

Smart Loan Aid helps federal student loan borrowers understand their loans, evaluate available resolution options, prepare necessary documentation, and navigate applicable student loan processes.

If your student loans are already in default or you're concerned they may be heading in that direction, understanding your options sooner can help you make a more informed decision about what comes next.

Need Help With Defaulted Student Loans?

Smart Loan Aid assists borrowers with evaluating options involving student loan default resolution, rehabilitation, consolidation, repayment programs, forgiveness, and discharge.

Contact Smart Loan Aid at (844) 869-5521 to speak with a student loan advisor and learn more about the options that may be available for your federal student loans.

Smart Loan Aid is an independent student loan assistance company and is not affiliated with the U.S. Department of Education. Eligibility and final approval for federal student loan programs are determined by the applicable loan holder, servicer, or government agency. Results are not guaranteed.