Consequences of Default

If the borrower does not repay their loan on time, it will become delinquent and possibly default. This has serious consequences and can be very damaging to one's credit rating. The FSA Debt Resolution website provides borrowers with an overview of their defaulted federal education loans, along with options for tracking, managing, and resolving their loans. 

Consequences of Default

Defaulted loans are reported to all national credit bureaus, which can negatively affect the borrower's credit rating and ability to purchase a car or home in the future.

In addition to receiving a bad credit rating:

• the entire unpaid amount of the loan, including interest, will become immediately due and payable;
• the borrower may be liable for collection costs;
• the borrower may lose future eligibility for financial aid and/or educational loans;
• the references supplied on the loan application may be contacted;
• the borrower may lose deferment and forbearance options;
• federal and state tax refunds may be withheld and applied to the loan balance;
• the borrower's Illinois professional license renewal may be denied;
• the borrower's employer may withhold part of the borrower's salary for payment of the loan;
• the loan may be referred to a collection agency; and
• legal action may be taken against the borrower.

The borrower will still be required to pay the loan!

Unable to Make Payments

If the borrower is unable to make the monthly payments, they should contact the lender immediately to avoid default by considering alternative repayment options. Additionally, depending upon circumstances, the borrower may qualify for loan deferment, forbearance or forgiveness.

Additional Information

For more information on defaulted loans, visit the Default Prevention and Management area of the FSA Partner Connect website.