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

 

Loan Default Repayment Requirements

Students who are in default on federal student loans have two options to assist them in repaying their student loan obligation – Loan Consolidation and Loan Rehabilitation. Under both programs, the borrower must demonstrate an ability to repay the loan(s) by making regular, monthly payments. The basic requirements and advantages of each program are listed below:

Loan Consolidation Program

Loan Rehabilitation Program

Requires three consecutive monthly payments.

Requires twelve consecutive monthly payments.

Extends payoff up to 30 years.

Extends payoff up to 9 years.

All outstanding loans will be consolidated, and one monthly payment is required.

Negative information reported to credit bureaus will be removed.

Credit bureaus will be updated to reflect "Paid Collection" account.

NDSL/Perkins Loans are not eligible for Loan Rehabilitation.

For further information regarding these options, please call
1-800-4-FEDAID