What happens if my loan is in default?

When a student loan is in default, it typically occurs when the borrower fails to make scheduled payments for an extended period, usually after a period of 270 days for federal loans. This situation can have several serious consequences. Firstly, the entire loan balance may become due immediately, and the borrower may be responsible for fees and additional interest. This can significantly increase the total amount owed. In addition to financial implications, defaulting on a student loan can also negatively affect the borrower's credit score. A lower credit score can hinder the ability to secure future loans, credit cards, or even housing, as lenders often review credit history as a part of their approval process. Furthermore, the borrower may lose eligibility for federal financial aid and deferment options that could have provided relief during financial hardship. If a loan is in default, the lender may engage in collection efforts, which can include wage garnishment, where a portion of the borrower's wages is deducted directly to pay off the loan. Tax refunds and other federal payments may also be intercepted to recover the amount owed. Rehabilitation or consolidation options may be available to help resolve the default status, which can restore the borrower's eligibility for federal programs. For specific guidance on addressing a defaulted loan, borrowers may consider exploring the information provided on the American Education Services website, which outlines potential solutions and resources that may assist in resolving this issue.