Student Loans: Default & How to Get Back on Track
October 8, 2025
Student loan payments can put a real strain on your budget, especially now that many borrowers are resuming payments for the first time in years. It’s understandable to feel overwhelmed—but missing payments can have serious consequences for your finances and credit. The good news? There are practical ways to stay on track, even if you’re struggling.
What happens if you stop paying your student loans?
The impact depends on the type of loan (federal or private) and how late your payments are. Federal loans generally give you more flexibility through programs like income-driven repayment or loan rehabilitation. Private loans, on the other hand, often move more quickly to collections.
The longer you go without paying, the steeper the penalties become. A single late payment might result in fees, while defaulting—failing to make payments for an extended period—can have lasting effects on your credit and financial stability.
When do loans go into default?
For federal student loans, default typically occurs after 270 days (about nine months) of missed payments. Private lenders usually act sooner, with some considering your loan in default after just 90 days. Once that happens, your entire balance can become due immediately, and additional collection efforts begin.
The consequences of late or missed payments
Late fees: Private lenders often charge a percentage of the missed payment as a fee, though federal loans don’t include late fees.
Credit score damage: Payment history is a key factor in your credit score. Both federal and private lenders usually report late payments after 30 days, which can lower your score and make borrowing more expensive. If someone co-signed your loan, their credit may also be affected.
Loss of flexibility: Once your loan goes into default, you lose access to repayment options like deferment, forbearance, or income-driven plans.
The consequences of default
Loss of loan benefits: Defaulting on federal loans disqualifies you from future federal aid and repayment relief programs.
Wage garnishment: The government can automatically withhold up to 15% of your disposable income to repay defaulted federal loans—without taking you to court.
Tax refund and benefit offsets: Through the Treasury Offset Program, your tax refunds or certain federal benefits can be withheld to repay your debt.
Collections and legal action: Private lenders may turn your debt over to a collections agency or take you to court. Agencies can charge collection fees that significantly increase your balance.
License suspension: In some states, professionals such as teachers, healthcare workers, and lawyers can lose their licenses if they default on student loans. Even your driver’s license may be at risk in certain cases.
How to get out of default
If you’ve defaulted on federal loans, there are two main ways to get back on track:
● Loan rehabilitation: Agree to make nine affordable monthly payments over ten months. Afterward, your loan is no longer in default, and the record of default is removed from your credit report.
● Loan consolidation: Combine your defaulted loans into a new Direct Consolidation Loan after making three payments. This option gets you out of default faster, though the record of default remains on your report.
Private loan borrowers should contact their lenders directly to discuss repayment or settlement options. Negotiating a lump-sum payment or new terms could help you resolve the debt.
Do student loans ever go away?
Some borrowers qualify for forgiveness or discharge under specific conditions:
● Income-driven repayment forgiveness: After 20–25 years of qualifying payments (depending on the plan), your remaining balance may be forgiven.
● Public Service Loan Forgiveness (PSLF): Full-time public sector employees may have their remaining balance forgiven after 120 qualifying payments.
● Teacher loan forgiveness: Eligible educators could have up to $17,500 forgiven.
● Employer assistance: Some employers now offer student loan repayment benefits.
● Disability or death discharge: Loans can be canceled in cases of permanent disability or death.
● Closed school discharge: If your school closes while you’re enrolled or shortly after, your federal loans may be canceled.
If you can’t afford your payments
If your monthly payments feel unmanageable, don’t ignore them—reach out for help instead. Federal borrowers can change repayment plans, consolidate loans, or apply for income-based repayment to lower monthly costs. Private borrowers might consider refinancing for a lower rate.
Deferment and forbearance options can temporarily pause payments, but these programs are being limited under upcoming federal rules, so it’s wise to act early.
The bottom line
Falling behind on student loans can affect nearly every part of your financial life—from your credit score to your paycheck. But you’re not without options. Whether you explore forgiveness, consolidation, or income-driven repayment, taking proactive steps can help you regain control and avoid the long-term fallout of default.
Sources:
https://www.fidelity.com/learning-center/smart-money/what-happens-if-you-dont-pay-student-loans
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.