What happens if you default on your Federal Student Loans or Private Student Loans

Federally student loans  are considered in default status after 270 days of consecutive non-payment. At that point, the Department of Education typically hands off the account to a debt collector. The Department. of Education contracts with 23 private companies that collect defaulted student loans. Once your loans are defaulted, a few things will happen. First, you lose the ability to enter into a repayment plan (discussed above) and you cannot request forebearance or deferment. Second, the Department of Education also reports student loans to the credit bureaus, so your loans will likely be reported as in default status. Third, once loans are in default status and placed with a collection agency, the Department of Education can add a collection fee of up to 25% of the principal, interest, and fees already due and owing. On top of that, the collection agency can charge a commission of 25% or more. Lastly, federally backed student loans can be collected through the use of income tax refund captures and administrative wage garnishment of up to 15% of your wages. Borrowers will get notice before either occurs, but a judgment is not required for either step.

Private Student Loan Default is not the same as defaulting on a federal student loan. A private student loan is considered to be in default after 120 days of non-payment while a federal student loan is considered to be in default after 270 days of non-payment.

  • The lender can add collection charges to the amount owed, which typically will increase the loan balance by 25% to 40%.
  • The lender may sue the borrower and/or cosigner to collect the debt on private defaulted loans.
  • If the private student loan lender gets a court judgment against the borrower or cosigner, the private student loan lender may be able seize assets (ie., financial levies on bank accounts) and place liens against property owned by the borrower or cosigner.
  • Private student loans, like federal education loans, are almost impossible to discharge in bankruptcy.


Typical Violations from debt collectors regarding Federal Defaulted Student loans and Private Defaulted Student Loan:

Are any of these common violations happening to you?


  • Call repeatedly or continuously
  • Use obscene, profane, or abusive language
  • Call before 8:00 am or after 9:00 pm
  • Call at times the collector knew or should know are inconvenient
  • Use or threaten to use violence if you don’t pay the debt
  • Threaten action they cannot or will not take
  • Illegally inform a third party(relative, Co-worker, boss, or other about your alleged debt
    • Unless you have expressly given permission, collectors are not allowed to inform anyone about your debt except:
      • Your attorney
      • The creditor
      • The creditor’s attorney
      • A credit reporting agency
      • Your spouse
      • Your parent (if you are a minor)
  • Repeatedly call a third party to get your location information
  • Contact you at work knowing your employer doesn’t approve
    • A collector is not allowed to contact you at work if you’ve let them know your employer doesn’t approve of these calls.
  • Fail to send a written debt validation notice
    • Within five days of the collector’s initial communication, it must send you a notice include the amount of the debt, name of the creditor, and notice of your right to dispute the debt within 30 days.