What to Do if You Default on Loans

Borrowers should understand potential financial consequences before consolidating or refinancing loans.

Defaulting on your student loan debt can feel like a crushing financial loss, but you're not alone: The U.S. Department of Education says that 8.2 million federal student loan borrowers are in default, and that doesn't even include those who have defaulted on their private student loans.

Thankfully, it is possible to get out of student loan default. Here's what happens if you don't pay back your student loans, how to get out of student loan default, and how to avoid it in the future.

What happens to your student loans if you don't pay them back?

Serious things can happen if you don't pay back your student loans. Once a loan is in default, the whole balance is due right away. This is called acceleration. If you don't pay your debt, it could be sent to collections, which could hurt your credit for up to seven years.

The lender may even sue you to get the money back, and if you lose, your wages could be taken and your property could be taken away. How long it will take and what will happen depend on where you live and whether you have federal or private student loans.

Federal student loans. When you miss a student loan payment, you enter delinquency. If you are late on a payment for 90 days, it could hurt your credit score. Most federal student loans go into default after not being paid for nine months.

However, Federal Perkins loans can go into default as soon as a payment is missed. When you are in default, you can't get future financial aid or federal benefits like forbearance, deferment, and some types of repayment plans.

Private student loans. This depends on the lender, so check your loan agreement for more information about being late or not paying back your loan. The Consumer Financial Protection Bureau says that most private student loan debt goes into default after 90 days or three missed payments.
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