Loan Default

If the student fails to make loan payments when they are due, he/she will be considered to be in default. Default on a loan occurs if the terms of the promissory note are not followed. If the student does not repay the loan, the loan servicer may then take legal action (e.g. wage garnishment) to collect this debt. During the time the student is in default, the servicer may continue to charge interest on the loan. In addition, the servicer or the Department of Education may report to a credit bureau that the loan has not been repaid. This report can affect credit rating, making it difficult to obtain credit in the future. Timely repayment of a loan is the surest way of building a good history, which is important for future loan applications to purchase such things as a car or house. Problems can occur if a student loan repayment is not made on time, including loss of eligibility for further financial aid, loss of federal and/or state income tax refunds and possible legal action. Paying back student loans helps to ensure that the door remains open for other students to borrow for their education.