Defaulting on a student loan is a serious issue but for many, it seems like the only resort when they feel as if they are drowning in student loan debt and do not know where they can safely turn for a reprieve.

Defaulting on a student loan occurs when no payment is made within a 270-day period. This loan status reflects very poorly on your credit history report and can make getting approved for a future loan (like for a house or car) extremely difficult.

Student Loan Advisory Group is dedicated to helping those who are in financial stress and struggling to meet their student loan obligations. Here, you have the opportunity to discover the dangers of being involved in defaulted loan with the best solutions you can do to resolve the issue.

What Are The Dangers Of Student Loan Default?

Poor Credit History

There are different disadvantages on your part if you are facing a student loan default. The first and biggest impact of defaulting on your student loan will be the negative reflection on your credit report. This status shows other creditors that you routinely missed required payments and lowers your credibility as a borrower. This can make it difficult to open a new line of credit, including applying for a home or car loan.

Even if you pay off the loan after is goes into default, your credit history will show that the loan is paid off but was once defaulted. This notation will stay on your credit file for years.

Debt Collections

In the event that your student loan goes into loan default, aside from poorly reflecting on your credit score, it is also likely that your loans will be sold to a collections agency to recover some or all of the debt owed. This may also lead to additional fees added to your loan balance by the collection agency for their efforts in obtaining payments.

Federal Aid Borrowing Limitations

When you default on a federal student loan, you are no longer eligible for new federal aid. This is an issue for individuals who would like to return to school or who would like to obtain an advance degree. If your current student loans are in default, then you will not be able to apply for federal aid for your new courses. In order to become eligible for federal aid, you will have to get out of default (see below).

Wage Garnishment

Wage garnishment refers to the direct deduction on your paycheck, a specified amount withheld much like federal and state taxes are. Placing a wage garnishment order until you pay off your loan is among the most frustrating issues you can ever face with loan default – up to 15% of your expected paycheck can be deducted each payday.

Once a wage garnishment order is in place, you will be limited in your default recovery options. With a wage garnishment in effect, you are not eligible for student loan consolidation and will have to take extra default recovery steps (like taking part in a debt rehabilitation program) in order to have the garnishment removed.

Deferments And Forbearance Exclusions

Defaulted student loans can result in lost eligibility for a loan deferment and/or forbearance. Deferments and forbearance are both loan repayment reprieve options that temporarily stop payment obligations in order to provide borrowers more time to become financially stable before payments are to begin again. However, if you stop making payments on your own due to financial hardship and end up defaulting on your student loans, then the student loan providers and/or student loan servicing companies will not allow you to take part in these reprieve programs that could have been highly beneficial for you in your current circumstances.

Tax Offset

Having a student loan default, your debt can (and will) be referred to IRS in order to regain the amount owned by requesting an offset to your tax refund. This means, any money that generally comes back to you in the form of a tax refund will be directly sent from the IRS to the student loan lender to pay off your debt. This can also include your legal spouse’s federal tax refund if you file jointly and even if they did not co-sign the student loan or you were not married at the time of applying for the loan.


As a borrower, one of the most distressing scenarios you can ever face is loan default. However, there are effective ways the Student Loan Advisory Group can help to remove your student loan default. During our initial and complimentary consultation with you, we will review your current student loan situation and help you determine the best course of action and aid you in the process of student loan default removal.


One of the best ways of fixing a student loan default is by entering a rehabilitation program — it a good start and proactive decision to get your student loan out of its default status.

With a student loan rehabilitation program, you will spend nine months under a strict payment agreement. If you successfully comply with making the required monthly payment on time every month, the default status will be removed. Payments required during student loan rehabilitation are income-based so as to not add further financial duress and encourage a successful outcome.


Although your loan is under default, you may be eligible to consolidate the defaulted student loan or loans if a wage garnishment levy has not been placed against your finances. Defaulted loans can be consolidated through the William D. Ford Direct Loan program (more commonly referred to as just Direct Loans).

By consolidating through the Direct Loan program, you can pay off the defaulted loans and begin anew with a loan under good standing – and seek more favorable loan repayment options. Some borrowers may even qualify for $0.00 monthly payments. This actually serves as a monthly payment and not a forbearance or deferment and with the Direct Loan program, any loan balance remaining after 20 to 25 years is discharged.

Taking this route can also enable you to qualify for certain student loan forgiveness programs as well. Important to note is that your interest rate after consolidating with a Direct Loan is often a weighted average of the defaulted loans, so your interest rate on your consolidated student loans may be higher – although if it gets you out of defaulted status, it can be worth it.

Negotiated Settlement

Another option available to those who have already defaulted on their student loans is a negotiated settlement. With a negotiated settlement, the borrower (you) are able to pay off your debt in full but for less than you actually owe. Lenders will only agree to a debt settlement if the amount is more than what they think they can recover through other options like wage garnishment or tax offsets.

Typically, lenders will approve a negotiated settlement under one of the three following payment scenarios:

  1. You pay the total principal balance in full plus 50% of the interest balance owed.
  2. You pay 90% of the principle and interest balance total (essentially, 10% off what you owe if you pay it in a single lump sum).
  3. You pay the total principal balance, total interest balance, plus the unpaid interest but all collection fees, late fees, and other related charges are waived.

The catch? The borrower must pay the settled amount in full within 90 days of the agreement.

Although some of the lump sum payment options seem ideal for individuals who have not defaulted on their loan, negotiated settlements are not available unless the borrow has already defaulted, does not have the financial stability for other debt recovery recourses, and/or the lump sum amount is more than what the lender may get through other collection options.

Full Payment

The fastest, if not always the most plausible, option to removing a default status is to pay it off in full. For most, this is achieved by seeking a personal loan to pay off the student loans (often consolidating it with other debt like credit cards or medical bills). Since your credit is marked with a defaulted status, you may be required to have a co-signer on your consolidation loan. The Student Loan Advisory Group can also help you locate private student loan refinancing lenders who are more willing to provide a new loan to help struggling individuals get out from under student debt.