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What Happens If You Default on Student Loans?

By Cynthia Hsu, Esq. | Last updated on

If you default on a student loan, what happens? Unfortunately, more Americans are finding out the answer first-hand.

Student loans now have the highest delinquency rate of any consumer loan, higher even than car loans or credit cards, according to Bloomberg Businessweek. Many of those student loan delinquencies -- i.e., missed payments -- will lead to student loan defaults.

Default occurs when a borrower continues to miss payments on a loan. For federal student loans, for example, default is when no payment has been received for 270 days. At that point, a lender like the Department of Education may take steps to collect payment.

There are several ways this can happen. For example:

  • Taking tax refunds. Part of a borrower's tax refund may be seized. Typically, a borrower will receive a notice from the Department of Education or loan guaranty agency that their refund is being taken. If the borrower doesn't appeal, the refund will be taken and applied to the student loan. Borrowers may appeal if they have a defense, such as the loan has already been repaid, the loan is in deferment, or the loan has been canceled.

  • Garnishing wages. Lenders may also decide to garnish a borrower's wages. Borrowers will receive notice and information if their wages are to be garnished. Borrowers can object to the garnishment. The defenses that they can use in their objection are similar to the defenses used against seizure of tax refunds.

  • Filing a lawsuit. The Department of Education and other lenders can also sue borrowers to collect on student loans. If lenders win, they can place liens on the borrower's property. They can also take assets from bank accounts.

The above isn't an exhaustive list of all the methods lenders can use if you default on your student loans. If legal action against you has already commenced, you may want to consult an experienced collections lawyer. To learn more about avoiding default and other options available to you, check out FindLaw's section on Student Loan Relief and download our free Guide to Student Loan Debt.

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