Consequences of Default

  1. Your credit rating suffers.
    The national credit bureaus are notified of your default. This notification will harm your credit rating and likely will make it difficult for you to obtain other types of consumer credit, such as a home mortgage or a car loan.
  2. Your wages may be garnished.
    Your employer may be ordered to withhold a portion of your pay, which will be applied to your unpaid balance.
  3. You will incur additional costs.
    Collection costs of 21.5% of your outstanding balance may be added to your account when you default. In addition, interest continues to accrue. For example, if you default on $5,000 in student loans and fail to make a payment for two years, at the end of that period, the balance that you owe could grow to more than $7,000, including collection costs and additional interest.
  4. Your income tax refunds may be seized.
    If you are due a federal income tax refund or other federal payment, that payment may be seized to satisfy the outstanding balance that you owe. In addition, some state governments also seize state tax refunds or benefit payments due to defaulted borrowers.
  5. You won't be able to receive additional federal student aid.
    If you wish to return to school, you will not be eligible for any additional federal student aid until you make arrangements to repay your loan.
  6. You may be sued.
    Your guarantor or the federal government may file a lawsuit seeking a civil judgment against you for the amount you owe.
  7. You lose deferment or forbearance options.
    Once you default on your education loan, you are ineligible for deferment or forbearance options, under which borrowers in repayment may legitimately reduce or delay their loan payments for specified periods.
  8. The debt doesn't go away.
    When you default, your debt doesn't go away, and interest continues to accrue. In most cases, your guarantor, collection agencies, or a unit of the federal government will continue to seek payment from you for years.
You may not be eligible for certain careers as a result of your TIV default. That's another risk factor to keep in mind.