Loan Default

Default occurs 270 days after the borrower fails to make a payment on his/her Direct Loan. The consequences of default on a Direct Student Loan include the following:
  • The entire unpaid balance, along with accrued interest, becomes immediately due and payable.
  • Deferment options are lost.
  • Eligibility for both state and federal financial aid are lost.
  • The account is turned over to a collection agency.
  • A negative report is sent to the credit bureaus, resulting in damage to the borrower's credit rating.
  • The borrower's state and federal tax refunds can be withheld and used to repay the loan.
  • The total debt may be increased by late fees, additional interest, court costs, collection fees, attorney's fees, and any other additional costs related to collection of the debt.
  • The borrower's wages can be garnished to repay the debt.
  • Legal action can be pursued to force collection.