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Preventing Default – Consequences of Default

If your loan payment is more than 270 days past due, your loan is considered in default. Failure to repay your loan may result in any or all of the following:

  • Report of the default to all national credit bureaus, resulting in adverse credit reports which may affect your ability to obtain financing for cars, houses, etc.
  • Report of the default to the Internal Revenue Service, causing federal tax refunds to be withheld and applied to the loan balance (this is also true for state tax refunds)
  • Garnishment of your wages
  • You will be charged collection costs and other costs necessary to collect debt. Your loan will be assigned to a collection agency
  • Loss of other federal or state payments
  • Loss of eligibility for further assistance from any Title IV Program
  • Loss of eligibility for repayment options, deferments and interest benefits as described on the Promissory Note
  • Denial of access to academic transcripts
  • Denial of professional licenses (in some states)
  • Lawsuit
  • Liability for court/legal expenses

Rights and Responsibilities of Student Loan Borrowers

What federal student loan borrowers need to know:

  • You need to keep accurate records of your federal student loans.
  • Keep your copy of the signed Master Promissory Note.
  • Open, read and maintain any loan information you receive from your school or loan holder.
  • Don’t ignore your loan payments.
  • When having difficulty making your scheduled payments, contact your loan holder to discuss repayment options.

Your rights and responsibilities as a borrower:

  • You must use your federal student loan for educational expenses only.
  • Your loan holder must give you details about your federal student loan before it’s disbursed and again when it’s time to start paying your federal student loan.
  • You must tell your loan holder any time you drop below half-time enrollment or change schools.
  • You must tell your loan holder if you change your name, address, phone number, social security number, references, or driver’s license number.
  • Before you leave school, you need to tell your loan holder your permanent address, the name and address of your expected employer (if known), and the address of your nearest relative.
  • You must repay your federal student loan, plus interest, even if you did not finish your program, did not finish your program in the regular time allotted for program completion, you are unable to get a job after you finish, or if you are unhappy with or do not get the education or other services you purchased from the school.
  • Your loan holder may sell your federal student loan or use a servicer to manage your account. If the federal student loan is sold and the address where you send payments changes, you’ll be notified of the name, address, and phone number of the new loan holder.
  • You are entitled to a deferment or forbearance of your federal student loan payments in certain situations. Contact your loan holder for the details.
  • You may prepay your federal student loan at any time without penalty.

Last updated: 11/10/2020