Student Loan Default: What It Means and How To Recover

As of April 2025, more than 5 million federal borrowers were in default on their student loans, according to the U.S. Department of Education. Going into default on your student loans can have lasting consequences, but fortunately, there are ways to recover.

Whether you have federal or private loans, you can bring your account back into good standing. Let’s look at student loan default consequences, when default occurs, and how to bounce back.

Current student loan refinance rates

What is student loan default?

Student loan default happens when you stop making payments and fail to meet the terms of your loan agreement. At that point, the entire unpaid balance becomes immediately due, and the loan is transferred to a collection agency.

Defaulting on student loans can lead to severe consequences, including damage to your credit score, wage garnishment, and having your tax refund withheld. You may also have to pay collection fees, court costs, and attorney’s fees if your lender takes you to court.

“When borrowers come to me, it’s often after they’ve already faced wage garnishment or collection notices,” says Christopher Migliaccio, a financial attorney at Warren and Migliaccio, LLP. “The first step is getting them to face the problem and contact their loan servicer or the Department of Education’s Default Resolution Group to understand their options.”

When does a federal or private loan go into default?

The timing of a student loan default depends on the type of loan you have. Federal student loans are considered in default after 270 days of missed payments. During that time, the loan is classified as delinquent, and you’ll receive multiple notices from your servicer before it officially enters default.

A private student loan default can happen much more quickly. Some lenders may declare your loan in default after just 90 days of missed payments, while others may wait longer. Because private lenders set their own terms, it’s important to check your loan agreement or contact your servicer directly to confirm the timeline.

Once a loan goes into default, it may be transferred to a collection agency. “At that point, your options become more limited, but it’s not too late to take action and start working toward getting your loan back in good standing,” says Migliaccio.

What happens when you default on student loans?

Once your student loans go into default, your servicer will begin taking steps to collect the balance you owe. For federal loans, this could result in wage garnishment and the withholding of your tax refunds. These funds are then applied toward your loan balance.

Private lenders generally must obtain a court judgment before garnishing wages, and they can’t take your tax refunds. But similar to federal loans, the entire loan balance becomes due immediately once you go into default.

If your lender is unable to collect on the debt, they’ll turn your private loans over to a collection agency. Not only will this seriously damage your credit, but the collection agency can sue you over the unpaid balance.

“Default doesn’t just affect your current finances — it can impact your ability to borrow or even get certain jobs in the future,” says Migliaccio. “But it’s important for borrowers to know they can recover. There are established programs, like default rehabilitation options and consolidation, that can help them get back on track.”

How to get out of student loan default

Once you’re in default, it can feel overwhelming, but the sooner you act, the more options you’ll have. Here’s how to start turning things around and rebuilding your finances.

Verify your loan status and who holds the debt

Start by confirming whether your loan is federal or private and who currently owns it. This could be a loan servicer, the Department of Education, or a collection agency. For federal loans, contact your servicer or the Default Resolution Group to verify your account details.

For federal loans, choose rehabilitation or consolidation

Federal borrowers typically have two paths out of default: loan rehabilitation or consolidation. According to Migliaccio, rehabilitation is best for those who can make steady, affordable payments since it removes the default from your credit report once complete. Consolidation works faster and restores eligibility for aid and income-driven repayment, but the default remains on your credit report.

For private loans, contact your lender about relief options

Private lenders set their own rules, but many are willing to work with you. Reach out to your lender and ask about hardship programs, modified payments, or settlements. If your account has been sent to collections, request all agreements in writing before making a payment.

How to avoid default in the future

Once you’ve brought your loans back into good standing, the next goal is to make sure you never end up in default again. Here’s how to build good financial habits and avoid similar problems in the future. 

Enroll in an income-driven repayment plan

If you have federal loans, consider enrolling in an income-driven repayment (IDR) plan. These plans set your monthly payments at a percentage of your discretionary income and can adjust if your financial situation changes. IDR plans can make payments more affordable and reduce the risk of falling behind.

Set up autopay to avoid missed payments

Missed payments are the most common reason borrowers fall back into delinquency. Setting up automatic payments ensures you never forget a due date, and most servicers even offer a small interest rate discount for enrolling.

Keep an eye on your budget and credit

Tracking your monthly spending helps you plan ahead for large expenses and ensure your loan payments fit comfortably within your budget. You should also monitor your credit report to confirm that your default status has been updated and that all payments are being reported accurately.

“Making on-time payments, budgeting, and keeping an eye on your credit report are long-term habits that rebuild financial health,” says Migliaccio. “I encourage my clients to automate payments whenever possible and adjust their budgets to make sure they don’t fall behind again. If they stick with it, they can not only recover from default but also prosper financially.”

Reach out early if you’re struggling

If you lose your job and can’t afford your payments, contact your servicer immediately. Options like deferment, forbearance, or a new repayment plan can temporarily ease the burden. The earlier you reach out, the more solutions you’ll have available.