Many people don’t realize the seriousness of defaulting on their student loans. The consequences of student loan default can be far reaching and the impact can be devastating. Defaulting on your student loans does a lot more than negatively impact your credit. It can keep you from getting a job, renting an apartment, or even getting a cell phone. Find out what can happen – and how you can turn it around.

Collections, Lawsuits, and your Credit Score

As with any overdue loan, defaulted student loans could be turned over to a collection agency and wind up on your credit report. Keep in mind that if you default on your student loan you could be sued for the full amount and find yourself liable for court costs, attorney fees and other associated collection costs. Furthermore, your loan will continue to accrue interest while you aren’t paying.

Even after your defaulted loans are paid, they will still show up on your credit history for as many as seven years. This will make it very difficult to get a loan for a car, home, or even to rent an apartment. While this is pretty typical of just about any unpaid debt, a defaulted student loan carries some additional consequences that regular loans do not.


An individual who has a defaulted student loan cannot work for a federal agency. This is also true in most state, county, and city governments. They may even prevent a person from joining the military. A person who works for the federal government and later defaults on their loans could be suspended if their employer becomes aware of the situation. In some cases, that person could lose their job. Even government contractors are subject to this policy. What’s more, if a position requires a security clearance, a defaulted student loan can prevent them from obtaining it. Many professional licenses can be revoked or denied renewal if the license holder defaults on a student loan.

The federal government is relentless in their pursuit of individuals who default on their student loans. Ways that they can attempt to collect the debt include:

  • Garnishment of wages
  • Interception of state and federal income tax refunds
  • Withhold a portion of Social Security benefits
  • Reimbursements for government credit card payments can be seized (even if the purchases were work related and while on duty – such as hotel accommodation or car rental while on assignment)

A prospective employer who runs an applicant’s credit report as part of their hiring process may rule that person out as a candidate if they have defaulted student loans. Many companies run credit reports on prospective employees in order to determine their suitability for employment with the company. In an employer’s eyes, defaulted student loans reflects badly on a person and causes them to appear irresponsible. Many employers will not consider applicants with student loans that are in default.

Other Consequences of Defaulting on a Student Loan

In addition to the employment issue, the housing issue, and even getting a loan for a car in regards to defaulted student loans, there are still areas where default can cause problems:

  • Trying to obtain another student loan to finish or continue education.
  • Trying to get a cell phone plan.
  • Trying get homeowner’s insurance (or just about any insurance – many run a credit report on new applicants).
  • Trying to sign up for cable, internet services, or utilities.
  • Trying to apply for student loan deferment, forbearance, or loan forgiveness programs.

A person who has defaulted student loans on their credit report may be required to pay higher interest rates, deposits, and payments – or they could face denial of services. Insurance may be very expensive or the company could decline to ensure the person. Security deposits for various services including utilities, internet, and apartments may be significantly higher than the amount a person with good credit would pay. It just isn’t worth it.

Avoiding or Getting out of Default

If you have defaulted on your student loan or are about to default, there are things that you can do to help yourself. The first step is often to talk to the lender and try to come to an agreement regarding getting the loan back on track. Lenders do not want to see people default on their loans and often are very receptive to discussing repayment options. If you and your lender make a plan that will get you out of default, stick with it. Usually after a several months of paying on time the loan can be taken out of default.

If you have several student loans consolidation may be the answer. You can consolidate student loans and this may take you out of default. The terms and criteria for qualification to consolidate differ for federal and private loans. The best way to find out if you qualify for consolidation and if it will indeed get you out of default is to talk to your lender who can give you that information and let you know what your options are.

Once you consolidate, though, it is vital that all payments are made on time. One perk is that when you refinance student loans you can get a lower interest rate and even lower monthly installments. Additionally, if you choose to consolidate graduate loans or student loans you can protect your credit and avoid all of the consequences of default.

Of course, the best way to avoid the problem is to stay on top of it and not default in the first place. If you are having trouble repaying your loans, talk to your lender as soon as possible and work with them to keep your loans from defaulting. There are options, but there are people whose job it is to help you avoid default. Talk to them; they are there to help you.

Please note that the information provided on this website is provided on a general basis and may not apply to your own specific individual needs, goals, financial position, experience, etc. LendKey does not guarantee that the information provided on any third-party website that LendKey offers a hyperlink to is up-to-date and accurate at the time you access it, and LendKey does not guarantee that information provided on such external websites (and this website) is best-suited for your particular circumstances. Therefore, you may want to consult with an expert (financial adviser, school financial aid office, etc.) before making financial decisions that may be discussed on this website.