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When borrowers fail to make a payment on time they are considered delinquent; those who do not make several payments are in default. Defaulting on a student loan has severe and long-lasting consequences. The United States Department of Education may immediately demand repayment of the total loan amount due and will attempt to collect the debt. Collection costs may also be incurred. Borrowers with loans in default are ineligible for deferments. The Internal Revenue Service can withhold borrowers’ Federal income tax refunds, and the borrower’s wages may be garnished.
The borrower’s credit score may be adversely affected in the event of a defaulted student loan because the United States Department of Education reports defaulted loans to national credit bureaus. Poor credit scores can make it difficult for borrowers to purchase cars or homes by making them ineligible for future loans. Borrowers with loans in default are also ineligible for some types of student aid and certain deferments.
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