What Happens If You Default on Student Loans — And How to Avoid It

Student loan debt is a major financial burden for millions of Americans, and as of 2025, the federal government has resumed collections on defaulted student loans. If you’re struggling to make payments or worried about default, it’s important to understand your options — and your rights.

In this post, we’ll explain:

• What qualifies as a default,

• What happens if your loans go into default,

• How to prevent it,

• Available repayment and forgiveness options,

• How bankruptcy may help.

What Is Student Loan Default?

A federal student loan goes into default when you fail to make payments for 270 days (about nine months). Before default, a loan becomes delinquent after one missed payment. After 90 days, delinquency is reported to credit bureaus.

Private loans may have different timelines for default — often just 120 days of missed payments.

Consequences of Default Student Loans

Once a loan defaults, you could face:

• Immediate full balance due (including interest and collection fees)

• Ineligibility for deferment, forbearance, or new federal aid

• Credit damage from a default notation

• Wage garnishment (no lawsuit needed for federal loans)

• Tax refund and Social Security benefit offset

• Legal action and collection fees

As of May 2025, the federal government has resumed wage garnishment and tax refund seizures for defaulted loans. These actions were paused during the pandemic but are now fully back in effect.

How to Prevent Defaulting on Student Loans, If You Can’t Afford Payments

If you’re struggling to make payments, you have options — but you need to act before default. Here are ways to avoid falling behind:

1. Switch to an Income-Driven Repayment (IDR) Plan

IDR plans lower your monthly payments based on your income and family size — sometimes as low as $0/month. These plans also offer loan forgiveness after 20–25 years.

2. Apply for Deferment or Forbearance

These are temporary pauses on payments. Interest may still accrue, but it buys you time during hardship, unemployment, or medical issues.

3. Consolidate Your Loans

If your loan is delinquent but not in default, consolidation may reset the clock and let you enroll in an IDR plan immediately.

Options If You’re Already in Default

If your federal student loans are already in default, you still have three main options:

1. Loan Rehabilitation

Make nine on-time payments within 10 months to get out of default. Your credit report will no longer show a default, but late payments will remain. Note: This is a one-time option. If your plan doesn’t work and your rehabilitated loan defaults again, your only option will be to consolidate it out of default — assuming it’s your first time consolidating that loan. If it’s not, your remaining choices are to add another loan to the consolidation or pay your full balance.

2. Loan Consolidation

Consolidate into a new loan and choose an IDR plan. This clears the default faster, but your credit report will still reflect it.

3. Repayment in Full

This is rare, but technically possible. You must pay the full balance, including accrued interest and collection fees.

Special Forgiveness Options

Disability Discharge

If you’re permanently disabled, you may qualify to have your federal student loans discharged due to total and permanent disability (TPD). This requires documentation from the VA, SSA, or a doctor. If you are disabled and receiving benefits form the VA or SSA, it is a fairly quick and streamlined process.

Borrower Defense to Repayment

If your school misled you or committed fraud, you may be eligible to have loans discharged under borrower defense rules. This process has become more accessible in recent years, especially after closures of for-profit colleges.

Can Bankruptcy Help?

Bankruptcy can be a powerful tool — even for student loan borrowers.

Bankruptcy Can:

• Discharge other debts (credit cards, medical bills, personal loans) to free up income for student loans.

• Temporarily stop collections on student loans through the automatic stay.

• Possibly discharge student loans if you meet the legal standard of “undue hardship.”

That hardship standard is difficult to meet, but recent guidance from the Department of Justice and Education has made the process easier and more consistent. This is NOT a change in laws, but a process being allowed by the Department of Education to help some borrowers. A bankruptcy attorney can help you determine if you qualify for a discharge. Additionally, a Chapter 13 can help you pay your student loans and other debts to allow you to get your finances under control.

Even if your loans aren’t discharged, bankruptcy can give you financial breathing room by getting rid of other debt.

Final Thoughts: You Have Options to Handle Defaults on Student Loans

Student loan default is serious — but it’s not the end of the road. Whether you’re behind or just struggling to stay current, you have tools available:

• Income-driven plans

• Deferment or forbearance

• Rehabilitation or consolidation

• Forgiveness for disability or school misconduct

• Bankruptcy for broader financial relief

Don’t wait until you’re in collections or facing garnishment. Being proactive can protect your credit, your income, and your future.

Need Help with Student Loans?

If you’re in default or overwhelmed with debt, we can help you understand your options — including bankruptcy. Contact Ashley F. Morgan Law, PC for a free consultation to review your student loans and your broader financial situation.

Defaulted Student Loan FAQs

Q: How do I know if I’m in default?
Check your loan status at studentaid.gov. You can also call the Default Resolution Group at 1-800-621-3115.

Q: Can bankruptcy eliminate my student loan debt?
A: It’s possible, but not automatic. You must prove that repaying the loans would cause an “undue hardship,” usually through a special court process. Even if loans aren’t discharged, bankruptcy can eliminate other debts, making it easier to afford student loan payments.

Q: Can private student loans be discharged in bankruptcy?
It’s possible — but more difficult. Some private loans may be discharged if they don’t meet the legal definition of a qualified education loan. Talk to an attorney.

Q: What if I already had a loan in collections before the pandemic?
As of 2025, the government has resumed collections. If your loan was in collections, contact the Department of Education to explore rehabilitation or consolidation.

Q: How can I get my student loans out of default without paying the full amount?
A: You can either rehabilitate your loans by making nine affordable monthly payments or consolidate them into a new Direct Consolidation Loan. Both options can stop collections and help you regain eligibility for federal programs without needing to pay your balance in full immediately.

Q: Will a defaulted student loan stay on my credit report forever?
A: No. A defaulted student loan typically stays on your credit report for seven years from the date of default. If you rehabilitate your loan, the default status is removed (although late payments from before the default may remain).