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10 Consequences of Default

Default means a lot of things — none of them are good for you. Whatever you do, avoid sliding into default. 

Here's what can happen if you fail to deal with the problem.


1. Final Demand Notice

If you fail to deal with the problem, you ultimately will receive a final demand notice requesting payment in full of the entire unpaid balance of your loan including interest.


2. Collection Fees

Collection costs are assessed to your account adding hundreds, perhaps thousands, of dollars to the amount you must repay. In addition, interest continues to accumulate.



3. Loss of Payment Options

Once you default on your education loans, you are ineligible for deferment or forbearance options.


4. Poor Credit Rating

Defaulted loans appear on your credit reports resulting in further damage to your credit rating. It will take years to reestablish your credit which will affect your ability to qualify for a loan to purchase a car or a home or to obtain other credit.

5. Garnished Wages

Your wages can be garnished, which means that your employer will be ordered to withhold a portion of every paycheck to cover what you owe.


6. Tax Refunds Seized

If you are due a federal or state income tax refund, the Internal Revenue Service can take your refunds to collect any of your defaulted student loan debt.


7. Denial of Federal Aid

If you wish to return to school, you will not be eligible for any additional federal student aid until you make arrangements to repay your defaulted loans.


8. Litigation

The loan holder may file a lawsuit seeking a civil judgment against you for the amount you owe.


9. Your Career

If your career requires professional licensure, your state may suspend, deny or choose not to renew your professional license, which may have a negative impact on your career. In addition, schools may deny access to your diploma, transcripts and other school records — making it hard to apply for certain jobs.


10. Your Future

Unpaid student loans don’t go away. They will stay with you until you pay them back. With rare exceptions, federal education loans aren’t written off. The federal government, collection agencies or your loan holder will continue to seek payment from you for years.