Manage Your Money

Master the skills that can help you manage money throughout life.

What's So Bad About Loan Default?

Loan default can haunt you for a long time

Paying off your loans offers some great benefits. You start building a good credit history, which can help earn you a high credit score and make it easier to borrow for big purchases like a house. If you don’t make loan payments (payment lags for 270 or more days), your loans enter default. Why should you care? Because default can hurt you financially in some long-lasting and serious ways.

Consequences of student loan default

  • Your wages could be garnished. A percentage of each paycheck you receive will be withheld to pay your loans.

  • You’ll have to pay any collection fees and costs. You will be responsible for paying collection fees and costs associated with collecting on your loan. This can substantially increase your loan balance.

  • Your credit will be damaged, which will affect your ability to borrow. Defaulting could make it hard for you to borrow or to borrow at a favorable interest rate.

  • Tax refunds will be withheld. Your loan holder could seize your tax refund and other federal payments to which you are entitled.

  • You could be sued. Your loan holder may take legal action against you to force you into repayment.

  • Any professional licenses or certifications could be withheld. To have the license reinstated, you must have an established repayment arrangement with your loan holder.

  • You won’t be eligible for federal financial aid. If you default, you will be ineligible for any more financial aid, such as loans, unless your eligibility is reinstated.

Need repayment help?

AIE can offer help in case you enter default. However, if you are having any repayment issues, contact your lender. Your lender or servicer does not want you to default and will work to get you back on track to repayment or offer a deferment or forbearance if you qualify.

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