The consequences of not making payments on your loans are swift and harsh. You should take any and all steps possible to avoid getting to this point: Talk to your lender, talk to your parents, take on another job. Student loans give you access to education, but if you are not careful, they can damage your finances and credit score and make everyday life a struggle. Delinquency occurs within days of missing a payment and can drop your credit score within three months. Default occurs after nine months of missed payments and brings with it a whole host of other, more severe consequences.


Your loan will become delinquent.

Your loan becomes delinquent immediately after you miss a payment and continues until your payments make your loan current. After 90 days of delinquencies, loan servicers report you to the three major credit bureaus, which tanks your credit score.

Your credit score is how banks, rental agencies, lending institutions, credit card companies, insurance companies, and any other number of institutions determine the likelihood of you being able to pay back money you’ve borrowed to make a purchase. You can think of it like this: Your credit score is your value as a customer. People with high scores always pay their debts. Those with low scores have a history of late and missed payments and high amounts of debt. A low score means low credit card limits, if you are even allowed to get a card. You will also have trouble renting a home, buying a car, or trying to purchase a cell phone plan. If you want to easily do all of those things, make your loan payments on time to boost your credit score.

Your loan will go into default.

Your loan goes into default after 270 days of missed payments. The consequences of default are severe.

  • You will lose eligibility for federal student aid, deferment, forbearance, and repayment plans.
  • Collection agencies will come calling, and the entire unpaid balance of your loan—plus interest—is immediately due. Additionally, you have to pay collections costs which can run upwards of 18%.
  • Your debt will increase as interest and late fees accumulate.
  • Your credit rating will sink even further and it will take years to recover.
  • You can face legal consequences from your lender.
  • The government will get its money any way possible. This could include withholding your tax refund or taking money out of your paycheck directly from your employer.

The bottom line. If you are in default, contact the billing agency immediately, explain your situation, and ask for help!

Getting out of default is hard.

If you are in default, there are three options for taking back control of your student loan debt. These include loan repayment, loan rehabilitation, and loan consolidation. It is important to remember that the negative effects of default (such as a significant drop in your credit score) are not easily remediated. You will be dealing with those consequences for years.

  1. Loan repayment: This consists of immediately repaying your student loan and any accumulated interest in full. Obviously, if you’ve gotten into default, you do not have that kind of money laying around. This option would be best for individuals with generous family members.
  2. Loan rehabilitation: You can work with the U.S. Department of Education to develop an affordable payment plan for your federal loans based on your income. Then, you must voluntarily make at least nine payments on time. If your loan was released to a collection agency, the agency must sell the loan back to a lender, who becomes the payee. Once you’ve made consecutive on-time payments, your loan will no longer be in default.
  3. Loan consolidation: This consists of combining the remaining balances of federal student loans into a single loan (a Direct Consolidation Loan) with a fixed interest rate. First, you must make at least three consecutive, voluntary, on-time payments and discuss the loan with the U.S. Department of Education. You may also choose to switch to an income-driven repayment plan for your consolidated loans.

The consequences of defaulting on a loan are long-lasting.

Even if you manage to repay, rehabilitate, or consolidate your loan and get your payments under control, the consequences of delinquency and default will continue to follow you. It takes a much longer time to increase your credit score than it does to decrease it. You may find that as a result of not making your student loan payments, you now have difficulties:

  • Buying or renting a house or apartment
  • Getting insurance or low insurance rates
  • Signing up for utilities
  • Qualifying for credit cards
  • Qualifying for low interest rates
  • Buying or leasing a car
  • Activating a cell phone contract
  • Being hired for a new job
  • Qualifying for security clearance

Page last updated: 12/2016