Consequences of Defaulting

  • Definition of Default

     Failure to repay a loan according to the terms agreed to in the promissory note. For most federal student loans, you will default if you have not made a payment in more than 270 days.

    Consequences of Default:

    • Assessment of a $5.00 per month late charge

    • Delinquency reported to a national credit bureau. A poor credit rating can hamper the possibilities of obtaining loans. If you are planning on financing a house or auto in the future, it is essential to remain up-to-date on your loans. Credit ratings usually remain on the Credit Bureau records for approximately seven (7) years following the date of first delinquency.

    • Ineligibility for future Title IV financial aid. Once a Federal Student Loan enters default status, it requires effort to regain eligibility for additional financial aid.

    • Placement of the loan with a licensed collection agency. Accounts placed with a collection agency are assessed fees that are charged by the agency. Collection fees can be up to 30% of your loan balance if placed with a collection agency for the first time or 40% for subsequent collection efforts and/or litigation.

    • Litigation and court costs. Costs of litigation can sometimes be quite high. Per Federal Regulations, these costs are charged to the student/borrower.

    • Assignment to the Department of Education. Our office is not authorized to service any account assigned to the Department of Education. The deferment and cancellation provisions on the promissory note would no longer be valid. The Department of Education is also authorized to garnish income tax returns to recover the outstanding balance of assigned student loans.