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For many student loan borrowers, the amount they pay toward their debt each month is not insignificant. In fact, the average monthly student loan payment is currently $393, which can be an overwhelming expense if you're struggling to make ends meet.
But fall into the habit of missing your student loan payments and you run the risk of your loans eventually going into default, which has major repercussions.
The process of going into default on your federal student loans starts as soon as you miss a payment. These are the three steps that lead to defaulting:
- The first day after you miss a payment: Your federal student loans are considered delinquent and you may be charged late fees.
- After 90 days or more of not making a payment: Your loan servicer reports the delinquent account to the three main credit bureaus, which means it appears on your credit report and can hurt your credit score.
- After 270 days, or roughly nine months, of past-due payments: Your federal loan goes into default and you could see your debt go to collections.
Federal student loan borrowers got a break from having to worry about missing their monthly payments thanks to the Covid relief that has been in place since the CARES Act passed in March 2020. Until October 2021, federal student loan payments are suspended, interest rates are set to 0% and there's no collections on defaulted loans.
Outside of this forbearance period, however, loans in default can have a crippling effect to other areas of your life and finances. Here's what you need to know:
Defaulting on your federal student loans comes with some serious consequences. Here are just a few examples highlighted on the federal student aid website:
- Lose eligibility for federal benefits like repayment plans, deferment and forbearance
- Get cut off from additional federal student aid
- Have tax refunds withheld and/or a portion of your wages garnished to repay defaulted loan
- Risk being sued by loan servicer to collect on the debt
- Put Social Security retirement benefits at risk
- Negatively impact your credit score
Tracking your credit score can help you see how choosing to pay (or not pay) your student loans has an impact on your financial well-being.
You can check your FICO® Score for free from online resources like *Experian Boost™ and Discover ScoreCard. Access your VantageScore® for free from CreditWise® from Capital One and Chase Credit Journey.
While federal student loans don't go into default until after 270 days of past-due payments, borrowers with private student loans are beholden to the rules of their loan providers. It's important to read your loan servicer's terms and agreement, as well as reach out to a customer representative if you're unable to repay your debt.
The consequences of defaulting on your private loans vary from lender to lender, but they may include your late payment being reported to the credit bureaus or your debt being sent to a third-party collections agency. You also risk being sued by your lender for repayment of the defaulted loan. Losing the lawsuit could end up triggering wage garnishment or possible seizure of your home, depending on your state's laws.
It's best to check with your lender about any forbearance programs sooner than later to avoid these severe consequences.
Act fast by talking to your loan servicer immediately about how you can get back on track.
For federal student loan borrowers, your options may include switching to an income-driven repayment plan so you have a more affordable monthly payment, changing your monthly payment due date, streamlining repayment through a Direct Consolidation Loan or opting in for deferment or forbearance.
Federal loans offer all sorts of protections to help make your monthly payments more manageable, so we don't recommend federal loan borrowers pursue refinancing to avoid defaulting. Through refinancing with a private lender, you lose all your federal loan protections.
Private student loan borrowers, on the other hand, may want to consider refinancing since private loans don't come with the same protections and benefits.
Refinancing your private student loan(s) can allow you to streamline multiple payments into one monthly bill. You might also be able to get a lower interest rate if you qualify, which can make your monthly payments more affordable.
Private student loan borrowers should consider SoFi Student Loan Refinancing, which Select ranked as the best overall student loan refinance lender for its low interest rates and borrower payment protections. SoFi also stands out for having its own Career Advisory Group to help members look for new employment, and it offers access to live customer support 7 days a week. Plus, SoFi members get free career coaching and financial advice from planners.
No origination fees to refinance
Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans
Variable and fixed
Variable rates (APR)
From 2.24%; from 2.37% for medical/dental residents (rates include a 0.25% autopay discount)
Fixed rates (APR)
From 2.99%; from 3.12% for medical/dental residents (rates include a 0.25% autopay discount)
5, 7, 10, 15, 20 years
From $5,000; over $10,000 for medical/dental residency loans
Minimum credit score
Allow for a co-signer
It's crucial that you pay your federal and private student loans on time to avoid going into default. You may have more time to make a payment and avoid default with federal student loans than with private, but in both cases it's best to act immediately if you're worrying about paying your bills.
If you're already in default, or expect you may be once the Covid forbearance period ends on federal loans, don't wait and contact your servicer today to see what your options are.
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
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